Statement submitted by the Board of Governors of the Federal Reserve System to the Subcommittee on Consumer Credit and Insurance of the Committee on Banking, Finance and Urban Affairs, U.S. House of Representatives, February 9, 1994 - Transcript

Federal Reserve Bulletin, April, 1994

Disclosures on Envelopes

For example, H.R.1842 would require that the disclosure table appear on envelopes containing card applications or preapproved solicitations mailed to consumers in addition to the disclosures already required with the application or solicitation inside. We are also aware that consumers receive in the mail offers for card accounts enclosed in envelopes that may boldly display a term such as an introductory low annual fee or annual percentage rate. Nonetheless, the Board believes that the proposed requirement would not offer enough benefit to consumers to further complicate the rules. The consumer who is intrigued by a card issuer's offer to open an account will of necessity have to open the envelope to act on the offer and at that time will encounter the current disclosure table. The consumer who chooses not to open the envelope is not interested enough to consider the offer (and see the disclosure table) and has not been misled by the card issuer's marketing. The table currently required plays an effective role in connection with applications or preapproved solicitations by providing basic information in a user-friendly format to consumers as they complete the application form. The Board believes a second table on the envelope is unnecessary.

Additional Disclosures in the Table

The Board believes that caution should be exercised in mandating additional disclosures in the table. For example, information about the terms and conditions for forfeiting a grace period may be lengthy and detailed and could complicate the box and detract from its current "clean" appearance. On the other hand, adding the annual percentage rate for cash advances could be very useful for consumers.(2)

Changes in Terms

The Board is also concerned about the potential for consumer "information overload" when card issuers change certain account terms and about excessive cost and regulation. Currently, card issuers initiating changes adverse to consumers are generally required to send notices that highlight the changes at least fifteen days in advance of the change. The bill would require that the new terms to be set forth in a tabular format on at least one periodic billing statement before the effective date of the change. The bill would also require that a description of certain changed terms be provided in a tabular format on a separate piece of paper that is enclosed with a periodic statement sent at least thirty days before the change. Finally, the envelope containing the separate description and periodic statement must display a statement alerting the consumer to the fact that contract terms have been changed and that details are available inside.

The Board recognizes that a brief notice on an envelope stating that changes in contract terms are contained inside may be meaningful to consumers in the same way an envelope bearing the notice "Tax information enclosed" distinguishes for taxpayers the significance of the contents of that correspondence from others.