Experts say CFPB can do more to increase clarity of agreements

While the new federal agency tasked with helping protect consumers from predatory or misleading lending practices has made considerable strides in just a few months, experts note that more needs to be done, particularly in terms of helping borrowers to understand their lending agreements.

The federal Consumer Financial Protection Bureau has made it a priority to develop clearer lending agreements between financial institutions and consumers, so borrowers don’t run into any difficulties and end up having to try to figure out how to fix their credit, according to a report from Bloomberg News. However, in many cases, these agreements can still be difficult for many borrowers to understand. Already, the CFPB has taken some steps to bridge this gap.

What Can the CFPB Do?

The most significant way the CFPB has clarified lending practices is by rolling out prototypes for standard lending agreements that display all the terms, fees and ongoing costs associated with accepting most kinds of credit, the report said. These include contracts for new credit cards and mortgages, two of the most popular types of consumer credit. Included on all these forms is the monthly amount a consumer can expect to pay for his or her account.

But experts note it might be more important to ensure the language on lending agreements is written in plain English, the report said. A 2010 study showed that the average credit card agreement was written at a 12th-grade reading level, while the average American adult can only read at a ninth-grade level. In addition, the CFPB has not made it mandatory for lenders to use their prototype forms, meaning there is no penalty for continuing to use the old, more confusing agreements.

One of the main problems consumers who end up seeking credit repair run into is that they do not fully understand their lending agreement, and do not realize how costly it can be to make a misstep in dealing with their account. In many cases, a late payment is met not only with a penalty fee, but also a penalty interest rate, which can make an account difficult to afford for many borrowers. Consumers who take the time to closely examine their agreements will be less likely to run afoul of their lenders.

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