I share much of Chris’ reaction to the Bureau’s prototype cardholder agreement. The Bureau staff has labored mightily and has managed to produce an agreement that is six-(not two) pages of material. In considering the Bureau’s success or lack of success in producing a short cardholder agreement, it is important to note that the Bureau’s draft utterly fails to comply with the increasingly elaborate and complex regulatory requirements that have contributed greatly over the years to the length and complexity of cardholder agreements.
Even a cursory review of the prototype documents reveals that they do not include the following required disclosures, which typically require pages of verbiage :
- The tabular disclosures required by Section 226.6(b)(1) of Regulation Z. (Perhaps the Bureau contemplates replacing these disclosures with somewhat redundant disclosures included in the prototype document?)
- The billing rights notice required by Sections 226.6(b)(5)(iii), 226.12 and 226.13 of Regulation Z. (This statutorily prescribed language runs for the better part of a page.)
- The detailed description of the balance computation method required by Section (b)(4)(i)(D) of Regulation Z. (This disclosure is very hard to get right. It would have been (or could still be) fun to see how good a job the Bureau lawyers could do in drafting this material!)
Additionally, the Bureau version does not include any disclosures required by state law. Hopefully, if it does nothing else, the prototype will help put to rest Elizabeth Warren’s frequently repeated criticism of the industry (and draftsmen like me) for the length of cardholder agreements.
A few final thoughts. Unlike Chris, I am not philosophically opposed to relegating much of the boilerplate of a typical credit card agreement to a document containing standard terms. Much of the material of a well-crafted cardholder agreement is there for the lawyers and not consumers; it is necessary to protect against the class action lawyers trolling for issuers who have failed to comply with all of the technical requirements of applicable law.
If the Bureau’s project to develop new cardholder agreement formats is to have value—and the jury is still out on that question—the Bureau will need to make two important clarifications. First, it must explicitly permit issuers to stuff the standard terms they use in the same envelope with the core materials. Chris’ concern about the enforceability of standard terms that do not accompany the remainder of the agreement is real and serious. Second, the Bureau must expressly allow issuers to vary the standard terms from the Bureau’s draft. Any attempt to shoe-horn cardholder agreements into a rigid mold would be a major step backward.