Would it surprise you if your credit card statements are designed to confuse you?
Every aspect of your interaction with a credit card company has been designed, from their website, to the monthly statements, to the cards themselves. With just under 610 million active credit cards as of 20081, even the slightest change to the design of something can have a huge impact on the profits of a company.
Let’s make a theoretical example. As of this writing, Citibank has over 15 million accounts that have a balance at the end of the month2. In other words, that’s 15 million statements going out requiring payment. The average late fee for cards is $28.193. Let’s assume that average holds true for Citi. Given these numbers, if a change in Citibank’s statement can make the number of late payments go up by even half a percent, they will be getting an extra $2.1 million in late fees alone every month4.
Clearly, customer confusion can be profitable. So what kinds of confusion are common in statements?
Encourage Late Payments
Here’s some info from deep within the fine print on my last Citi credit card statement:
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The cutoff time for payments on the due date is 5 p.m. Eastern Time. In other words, this company selected the earliest possible time in the earliest U.S. time zone to cut off payments each day.
For those of us on the west coast, any online payment made after 2pm on the due date will be considered late5. And if you live in Hawaii, we suggest mailing your payments two months in advance (Just kidding. Sort of.)
Hide the Cost
How expensive is it to keep that balance? Until recently, most credit card statements provided little information about the real costs of a credit card balance. A cardholder would know their balance, last month’s payments, fees, and interest, and most importantly the minimum payment. However, the often shocking big-picture numbers, such as what the final cost and repayment date would be at minimum payments, were left off.
Thankfully, the amendments to the Truth in Lending Act in 2009 require companies to include this information. As of February 2010, your credit card statement should now include something similar to this:
Did you catch that? In this scenario, paying that magical minimum more than doubles the actual cost and takes 22 years to pay off. That little number isn’t so friendly any more.
Bury Important Information in Jargon
If it’s mandatory to inform the customer of something, the best way to make sure it stays secret is bury it in the proverbial ‘fine print’. There are some tricks to fine print, detailed in this long but fascinating report, which makes the text even harder to read. For example, here’s how my APR is calculated every month:
Got it? No? Me neither. They’ve placed a complex process into a dense block of prose with a compressed font that has poor readability6. It includes everything from jargon such as “daily balance method (including current transactions)” to off-page references to other tables. The above block of text is usability at its worst.
What Could Be Improved
There are 3 pieces of information that we believe are critical to understanding where you stand and what you need to do to get out of debt:
1. True cost – as mentioned above, clearly display how much things are actually costing you, from the overall monthly balance to the real price of those $100 shoes I haven’t paid off in six months.
2. Payments information – clearly display how additional payments affect your overall balance and time needed to get you to zero, like how an extra $50 payment could save you $20 in interest and get you to a zero balance one month sooner.
3. Interest data – clearly display how interest is calculated (no jargon) and show how much you are paying per day, week, and year on the current total balance.
Let’s Dump ‘Em
We think that this kind of relationship between a business and its customers is unhealthy. If everyone understood the costs and requirements of using their credit card, there would be a lot less debt in the world. ReadyForZero is focusing on fighting that confusion and giving you clear, actionable information to get out of debt. Sign up to be a part of the effort.
- Source: “The Survey of Consumer Payment Choice,” Federal Reserve Bank of Boston, January 2010 – http://www.bos.frb.org/economic/ppdp/2009/ppdp0910.pdf [↩]
- Source: Citibank http://www.citi.com/citi/fixedincome/cccs_tap.htm [↩]
- Source: Consumer Action 2009 Credit Card Survey http://www.consumer-action.org/news/articles/2009_credit_card_survey/ [↩]
- And this doesn’t factor in the profits from the resulting penalty APR and the forfeited grace period on interest, both potentially as profitable as the fees [↩]
- This is even weirder given that their payment processing facility on the statement is in Iowa, which is in the Central Time zone. [↩]
- Here are some readability guidelines. Try to count how many rules have been broken! http://www.webcredible.co.uk/user-friendly-resources/web-usability/web-page-readability.shtml [↩]