On the Web
October 11, 2016
Financial Product Legalese – it’s on You
agreement and to a Phoenix healthcare company that offers discounts to low-income customers – but first, they must decipher the confusing chart that explains who qualifies.
The person who nominated the healthcare company for an award said its discount information “seems like a classic case of the 0.2% who understand this chart will receive 85% of the Medical Financial Assistance, but they are clearly 400% above the average American who just got out of the hospital and has 0% of a clue as to what they’re talking about.” [Oddly, this chart seems to indicate that customers with higher incomes get larger discounts.]
In 2010, the Center for Plain Language started by awarding Clearmark Awards to government agencies, businesses and non-profits that successfully conveyed complex information to consumers – the CFPB and financial companies like Aetna and Sun Life have been winners.
More recently, said Susan Kleimann, chair of the Center for Plain Language, it has been fairly easy to give out bad writing awards to the financial industry. The large text and bold language in ads that tout cash-back credit cards or new-customer discounts are in stark contrast to the legal fine print in the same ads that serve advertisers in a different way, said Kleimann. “The information tends to be written from the perspective of protecting the company as opposed to communicating clearly with the customer,” she said.
(Full disclosure: Kleimann owns a company that helps governments and companies simplify their documents. But she does not vote on the Center for Plain Language awards, which are submitted by fans and voted on by the center’s all-volunteer judges.)
In the worst cases, obscure financial language is very harmful to consumers.
One example was unclear wording in subprime mortgage documents about the increase in homeowner’s monthly payments that would occur at the two-year mark. In May, the Consumer Financial Protection Bureau (CFPB) argued that arbitration clauses buried in credit card agreements, which bar card holders from disputing card charges in court, allow banks to “sidestep the legal system, avoid accountability, and continue to pursue profitable practices that may violate the law and harm countless consumers.”
The score so far: lawyers – 1; consumers – 0.
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Great post, Kim!! I am long time veteran of the financial services industry and know how hard the industry works to impress consumers with what they know. And it is not just in disclosures. To justify their fees, advisers have to create the impression that investing and planning are complex processes far beyond the understanding of everyday folks. Using industry jargon and messaging for many firms and advisers is a great way to promote complexity and imply that an investor needs pricey guidance to get through it all.
Early in my insurance sales career, I dazzled them with my knowledge: interpolated terminal reserve, extended term insurance, incontestability, per capita/per stirpes – how would you like that beneficiary designation?
I scared myself silly and made no sales. A kindly older gentleman straightened me out on using plain words and simple language. Success!
Forty years later I was involved in writing/editing Regulation 106 wording for an insurance company to disclose how much commission an agent would make on a sale of life insurance products in New York State. I don’t think anyone understood the final product except the actuary and the lawyer, which I think was the overall intention.
If you think financial services industry is bad, pay close attention to the drug commercials and listen to the voiceover of warnings. It was written by lawyers not sales people.
Great post, Kim. I have been working for a financial corp for the past 20 years and my opinion here is companies are failing to understand the customer needs and are concentrating on capitals instead of providing quality service and products. Thanks for the post. Keep writing great stuff.
As long as we have such a litigious society, the unintelligible legalese will have to – and should – remain. The moment that we begin to re-write these contracts in plain simple English, consumers and their lawyers will sue on every minor mis-step (which is the reason the legalese was put there in the first place).
Consumers indeed have poor decision skills due to lack of knowledge on what they are dealing with, and it doesn’t matter which industry or company is handling the case.
What consumers have to do is to, go through each and every condition in the paper. And they should at least have the basic knowledge on what they are purchasing or taking advantage of the offers.
Congratulations to Victoria’s Secret for the “mumbo-jumbo” award. Nevertheless, they have done a courteous job. What “we” the consumers have to do is to read the agreement properly and Financial Protection Bureau should work on making the agreements even more transparent.