Most people do not read their credit-card agreements. I can't even think of a single friend who might have sat down and read one of these things. In fact, I bet if I called all of my friends right now, every one of them would say they've never read one from end to end. Indeed, I imagine that a lot of my readers haven't read one of these things either. It's easy to understand why. These agreements are tedious and they're written by lawyers. Still, instead of taking the easy way out (and hoping that one of the terms doesn't come back to haunt you), it would be smarter to roll up your sleeves and dig in.
I'll be using several card agreements -- pulling terms from each of them. In some cases I will compare similar clauses while other times I will just use an isolated term from just one agreement. We'll be using card agreements from American Express Rewards Plus Gold, Juniper US Airways, Merrill + Visa, and BMW Visa platinum.
Today I'll take a look at the most straightforward terms in the agreement. I'll save the more convoluted -- and more difficult to understand -- terms for later in the week.
USING THE CARD
The American Express agreement starts with the "using the card" section. In it, American Express gives a general overview of the card -- and how you can use it. Not surprisingly, the agreement says that you agree to not let any person use a card except a cardmember whose name is on it. Seems simple enough. Yet, it's not unusual to see someone else use the card -- especially a spouse. The only other interesting snippet is this one: we may also request additional information from you at any time. That disclosure covers just about everything. Financial reviews would be covered under that disclosure.
The Merrill Lynch agreement reads like an eye chart of fee disclosures. The initial disclosures cover everything from annual percentage rate calculations to variable rate information. The "purposes for using your account" disclosure doesn't appear until page four on my agreement. That disclosure is interesting, by the way. Did you know that you agree to only use your card for personal, family, and household purposes? You may not use your account for business or commercial purposes, the agreement says. I don't know about you, but I know a LOT of people who put business expenses on their personal cards. I even wrote a column about it back in July. Not that card companies do anything about it, but the disclosure just serves as a reminder that it's much smarter to use a business card for business expenses.
SUSPENSION AND CANCELLATION
We may suspend or close your account. That comes from the Merrill Lynch agreement. It can do that at any time and for any reason. Your obligations will continue even if the card is closed by Merrill. In other words, Merrill owes you no explanation if it decides that it doesn't want you as a customer. Likewise, you may close your account at any time and for any reason. However, your obligations continue even after you close the account. Very obvious. And yet, I see people get extremely upset when card companies close their accounts -- for no logical reason.
American Express's suspension and cancellation disclosure reads similarly. We may suspend or cancel your account, any feature, of any component of your account, and/or we may suspend or cancel the authorization of any additional cardmember to make charges to your account, at our sole discretion at any time, with or without cause, whether or not your account is in default, and without giving you notice, subject to applicable law. (Emphasis mine.)
BMW, meanwhile, has a termination clause that says we may terminate your privileges under this agreement or limit your right to make purchases or obtain cash advances at any time (and list your account in warning bulletins) without notice or liability. Again, these card companies can simply shut you down for no reason at all.
Juniper's termination clause is very similar to BMW's. It says: we may terminate your privileges under this agreement or limit your right to make purchases, initiate balance transfers, use convenience checks or obtain cash advances at any time for any reason without prior notice. All of these card companies are sweethearts, eh?
AUTHORIZED USERS
Let's talk about authorized users for a moment. I think there is a common misconception that authorized users can run up large balances and leave the primary cardholder on the hook for those charges -- without any obligation on the authorized user's part. While it's true that card companies will go after the primary cardholder for those charges, some card companies pursue the authorized user as well. Indeed, the American Express agreement indicates that an authorized user will be liable for charges made on the additional card if the primary cardholder refuses to pay. American Express may, at our discretion, pursue additional cardmembers for payment of charges they incur or authorize, the agreement says. That's the contract that you and your authorized users agree to.
Although Merrill Lynch does not disclose an authorized user's payment obligation in the authorized user section of the agreement, Merrill does have a "promise to pay applies to all persons" disclosure. Here, Merrill says that all persons who initially or subsequently request, accept, guarantee or use the account are individually and together responsible for any total outstanding balance. That's pretty serious stuff. Even more interesting is this one: if you and one or more persons are responsible to pay any total outstanding balance, we may refuse to release any of you from liability until all of the cards, access checks, and other credit devices outstanding under the account have been returned to us and you repay us the total outstanding balance owed to us at any time under the terms of this agreement. In other words, Merrill could hold everyone hostage until the balance is paid in full. Nice.
That's it for today. I like to offer these kinds of columns up in bite-size pieces. I don't want to overwhelm my readers with a lot of dense items.
Tomorrow I'll start with default disclosures and I'll move toward dealing with those legal disclosures that are difficult to understand.