Tuesday, February 11, 2014
If you applied for credit, but got turned down with the reason “Your worst bankcard or revolving account status is delinquent or derogatory,” would you understand what that means?
Probably not, at least not for sure. Under the Dodd-Frank Act, lenders are required to send applicants written explanations of why they are denied credit outright or given less favorable terms than those for which they applied. This requirement is aimed at helping consumers understand what they need to do to improve their credit scores. But many of the explanations provided to consumers are drafted by the credit score developers themselves and use confusing terminology or are too short to be useful.
What’s worse: lenders are aware of this problem, but apparently choose to do nothing about it. According to one survey, 75% of lenders “worry” that consumers don’t understand the disclosure notices. Only 10% of lenders said that their customers understand reason codes “well.” This problem is, of course, not isolated to the credit industry, but also prevails in the health care industry and beyond.
Contracts law is not helpful for consumers in this respect either: there is a clear duty to read and understand contracts, even if they are written in a language (typically English) that one does not understand. Perhaps that’s why only 10% of lenders bother to translate documents into Spanish with the effect that many Spanish-speaking monolingual applicants are unable to read the explanations at all.
Some companies offer websites offering “translations” into easier-to-understand and longer explanations of the codes behind credit refusals and what one can do to improve credit. There’s a website for almost anything these days, but for that solution to be sufficiently helpful in the lending context, it must be presumed that these websites are relatively easy to find, free or inexpensive, and easy to use; all quite far from always the case.
As law professors, most of us probably require our students to write in clear, plain English. We don’t take it lightly if they write incomprehensible sentences. The desirability of writing well should be obvious in corporate as well as academic contexts.