This information is provided under a cooperative agreement between the Better Business Bureau and the U. S. Federal Trade Commission (FTC), which has prepared this information.
Facts for Business
How to Write Readable Credit Forms
Table of Contents
Testing and Evaluating
If your company offers consumer credit, you probably communicate with your customers using many different standardized forms and notices. These may range from short notices to complicated contracts that explain the terms of your credit plan. This manual is intended to help you write consumer credit contracts and other forms in "Plain English" so that your customers can easily understand them.
Over the past ten years, a number of major insurance companies, retailers, and banks have voluntarily redrafted their consumer communications into "Plain English."
Many other companies have simplified their forms in response to state law developments. Since 1974, seven states have adopted "plain language" laws covering consumer contracts, including credit agreements. A number of other states are considering similar legislation.
Why do creditors use "Plain English" language in consumer credit communications? Here are four reasons that companies have discovered:
"Plain English" is good for Customer Relations.
When you communicate simply and directly with your customers, you show them that you value their business.
Customers expect to understand what you have to say.
Consumers expect clear information about matters that affect their financial decisions.
Customers need to understand their obligations.
Your customers can best understand credit terms that are easy to read and comprehend.
"Plain English" communications can save you money.
Companies that use easy-to-understand forms report fewer inquiries and less litigation. They also say that it is easier to train staff and handle complaints.
Obviously, there is no "right" way to write a letter or credit document. Except for certain federal and state requirements, the substance of your communications with you customers -- and even your decision whether communicate with them -- are choices for you to make.
As you read on, you may wish to check some of your company's contracts and form letters to see how they measure up against the "Plain English" principles presented below.
Does your document contain everything you want your customer to know about your credit arrangements?
Is the document's content limited to what is essential to protect your company's interest?
Does your form say everything the law requires -- in the manner the law requires?
Are your ideas organized logically so that necessary information is easy to find? Is the language clear and concise?
Does your layout help the reader follow your organization? Is the typesize easy to read?
Please note: While this manual generally discusses some of the federal statutes that apply to the consumer credit process, it is not a guide to compliance with consumer credit laws. Consult a lawyer to ensure that your document complies with all the federal and state laws that govern your business.
Planning is critical to "Plain English" writing, especially for complicated credit documents. Therefore, you should plan to:
determine the purpose of the document;
identify practical problems in existing forms;
eliminate superfluous provisions;
comply with legal requirements; and
organize the document logically.
Determine the Purpose of the Document
Think about the document from two points of view: your own and your customer's. Do you want the document to tell your customers how to take specific actions? Do you want it to define the rights and duties of both you and your customers? Make sure that the document says everything you want or need it to say.
Identify Practical Problems with Existing Forms
Ask your employees to tell you if and why they find certain sections of your current forms troublesome. For example, ask loan officers what problems they have explaining or interpreting credit agreement to prospective customers. Ask billing department and customer relations personnel how they would clarify your forms and letters to avoid or resolve problems. And then, check with your customers to get answers to the same questions.
Eliminate Unnecessary Provisions
Some credit contracts are more complicated than necessary because they cover contingencies that rarely occur in consumer credit transactions. Ask you lawyers how often the use protective clauses to collect debts and whether some or all of these clauses could be omitted to simplify the agreement.
Comply with Legal Requirements
As you plan any credit document, keep in mind applicable federal and state legal requirements. These laws often govern when you must communicate with your customers and determine the content and organization of the document.
Some laws determine when you have to disclose information to your customers. For example, the Equal Credit Opportunity Act requires a creditor to notify applicants of its action on their applications within 30 days after receipt of a completed application for credit. In addition, the federal Truth in Lending Act, Electronic Fund Transfer Act, Consumer Leasing Act, and comparable state laws require creditors to disclose specified information to the consumer in writing at specific times. These disclosures must be made before installment credit, electronic fund transfer, or lease agreements are entered into, or before the first transaction under an open-end credit plan or the first electronic fund transfer is made.
Some laws prescribe what information you must disclose or limit what information you may obtain. The Truth in Lending Act, for instance, requires creditors to inform consumers of credit costs for "closed-end" credit, such as a consumer loan or installment purchase. Required disclosures include the dollar amount of the finance charge, the "annual percentage rate," and the total cost of the credit transaction. That Act also requires creditors to use specific terms such as the "annual percentage rate" and the "finance charge" when making some of these required disclosures. (State laws governing credit cost disclosures may use different terminology and may require disclosure of additional information.
Regulation E, which implements the Electronic Fund Transfer Act, requires that certain disclosures, such as the "error resolution notice," must be said in a way that is "substantially similar" to the notice provided in the regulation.
Other laws, such as the Equal Credit Opportunity Act, limit the information you can get from your customers. That Act, for instance, generally prohibits creditors from asking about the applicant's sex, race, national origin, religion, marital status, or spouse. The Act also prohibits questions about income sources such as alimony, child support, or separate maintenance payments, except in specific circumstances.
Some laws also influence how you make certain disclosures. These laws may, for example, dictate the organization of the credit communication, including whether certain disclosures may have to appear in designated places in credit contracts or must be printed in specified typesizes. The federal Truth in Lending Act, for example, requires that specified credit-cost disclosures "shall be grouped together and segregated from everything else." In addition, some state laws specify that certain information must appear immediately above the space for the consumer's signature.
Remember: When planning any credit document, be sure it also complies with all state laws that apply to the credit plans you offer as well as with all applicable federal laws. State laws that govern the timing, content, and organization of credit communications vary considerably. In addition, more than one state law may apply to any particular credit plan. For this reason, when drafting credit contracts and disclosures, remember to review with your lawyer the requirements of all state laws that may apply. These include:
laws regulating small loans made by licensed lenders (usually called "small loan act");
laws regulating credit sales of goods or services to consumers (usually called "retail installment sales acts");
laws regulating credit sale of credit insurance (which may be part of the state insurance law, or a state credit statute); and
laws limiting the interest rates on credit that are not covered by small loan, retail installment sales, or other specialized state laws (usually called "usury laws").
Note that in some states all of the pertinent state requirements are codified under the Uniform Consumer Credit Code (U.C.C.C.).
5. Organize the Document Logically
Once you determine the purpose of the document and the information it must contain, organize the information clearly and logically. Divide the document into sections and put related information together.
The actual wording of a "Plain English" credit document is just as important as planning what it will say and how it will look. When you compose a "Plain English" credit document, be sure that you:
write for your customers;
use a personal writing style;
choose words and phrases that are simple, clear, and precise; and
organize your words simply and clearly.
1. Write for your customers
Your first step is to identify your customers. What do your marketing statistics tell you about the average age, educational level, income, and other characteristics of your customers? For example, approximately 54 percent of the adult in this country read below the 11th grade level; 20 percent do not read well enough to follow the cooking instructions on a frozen dinner. These considerations might affect the reading level you aim for and the style you use in your communications.
2. Use a personal writing style
A personal writing style allows your message to come through clearly. Whenever possible, you want to indicate:
who is doing the talking (for example, "we" -- the creditor);
who is being spoken to ("you" -- the borrower or cardholder); and
who is responsible for doing what ("we figure your finance charge in the following way...")
You can make your writing style more personal by using personal pronouns and the active voice.
Use Personal Pronouns
Using personal pronouns is an easy way to make your communication more readable. When you use personal pronouns, instead of words like :"the lender" and "the borrower," you make clear from the start which party is "we" and which party is "you." For example:
In this contract, "you" means anyone who signs this contract as a buyer, and any buyer's heirs or legal representatives. "We" means the seller and anyone to whom we assign (give or sell) this contract.
In addition, try to use pronouns and nouns consistently. For example, avoid using "you" and "the owner" to refer to the same person in the same document.
Use the Active Voice
Using the active voice also will make your writing more personal and direct. The active voice tells the reader immediately who is responsible for an action. For example, "We subtract payments and credits..." is clearer than "Payments and credits are then subtracted...."
3. Choose Words and Phrases that are Simple, Clear, and Precise
"Plain English" requires using language that consumers can easily understand. For example, the following paragraph from a creditor's letter denying an application for credit words and phrases that are difficult to understand:
It would be advantageous for you to contact the reporting agency mentioned and review your credit file for discrepancies. Should there exist a discrepancy, and a revision to the file is initiated, we will be pleased to reconsider our evaluation of your request for credit.
Written in "Plain English," this paragraph would read:
You may contact the credit bureau that gave us the credit report we used to review your credit file. If you find an error in your report and the credit bureau corrects it, we will be pleased to reconsider your application for credit.
When choosing the words for credit contracts, disclosures, and other communications with your customers, remember: use common words; avoid jargon, explain necessary technical terms; and eliminate unnecessary words.
Use Common Words
Writers of "Plain English" recommend replacing complicated or legalistic words and phrases with simple, everyday words whenever possible.
Where possible, replace technical or commercial terms that lawyers and other specialists may use. Otherwise, your customers may not understand what you mean. This contract clause, which sets out the cosigner’s liability if the borrower defaults, sues legal jargon that is unfamiliar to many people:
It is understood that the licensee or holder shall not be compelled to resort first to the collateral securing this obligation, but may at his election require said obligation to be paid by any maker or makers, endorser or endorsers, surety or sureties hereon, and to this agreement said makers, endorsers, and sureties hereby specifically give their assent...
Compare the previous paragraph with this "Plain English" notice to cosigners that is required by the Federal Trade Commission’s Credit Practices Rule:
Notice to Cosigner
You are being asked to guarantee this debt. Think carefully before you do. If the borrower doesn’t pay the debt, you will have to. Be sure you can afford to pay if you have to, and that you want to accept this responsibility. You may have to pay up to the full amount of the debt if the borrower does not pay. You may also have to pay late fees or collection costs, which increase this amount.
The creditor can collect this debt from you without first trying to collect from the borrower. The creditor can use the same collection methods against you that can be used against the borrower, such as suing you, garnishing your wages, etc. If this debt is ever in default, that fact may become a part of your credit record.
This notice is not the contract that makes you liable for debt.
The following words are examples of legal jargon that you can simplify:
Even when the words you use are common, you should be sure their meaning is clear in context. For example, some creditors use the phrase "excessive inquiries" to tell rejected applicants why the creditor denied them credit. What the creditor really means is "you have made too many recent applications for credit." Other creditors use phrases such as "residence too short" or "your residency is insufficient in duration" when what they really mean is "you have not lived at your current address long enough."
Explain Technical Terms
If you cannot avoid technical terms (for example, those that are required by state or federal law), explain the m in the text not in a separate "definitions" section. You might put the explanation in parentheses immediately after the technical term. For example, revised Regulation Z, which implements the 1980 Truth in Lending Simplification Act, suggests that creditors use the explanations shown here in parentheses:
Annual Percentage Rate (the cost of your credit as a yearly rate)
Finance Charge (the dollar amount the credit will cost you)
You can use other punctuation, such as dashes, to help the leader recognize and explanation, as show here:
If you have a credit balance -- that is, if you have paid us more than you owe on the charge account --
Be careful, however, not to replace technical words that have become widely understood. In fact, one study of a lease agreement showed that its simplified explanation of "security deposit" actually confused tenants.
Eliminate Unnecessary Words
Consumer Credit documents often contain unnecessary words. In the following example from a credit contract drafted before the FTC’s Credit Practices Rule became effective, all of the capital letter words could have been eliminated:
Each of us HEREBY BOTH INDIVIDUAL AND SEVERALLY waives ANY OR all benefit OR RELIEF from homestead exemption to which the signers OR ANY OF THEM may be entitled under the laws of this or any other state, NOW IN FORCE OR HEREAFTER TO BE PASSED, as against this debt or any renewal THEREOF.
Simply translated, this sentence means: "If I do not repay this loan, you can take the real estate that state law would otherwise allow me to keep."
To simplify credit documents and other communications, avoid using strings of words with similar meanings, such as "cease and desist" or "due and payable." Instead, choose one word that best expresses the idea.
Consider using action verbs instead of "verbal nouns" (or gerunds). For example, "describe" is shorter than "give a description"; "collect" is simpler than "make collection of."
4. Organize Your Words Simply and Carefully
How you put your words together is as important as the words you select.
For example, try to use the same words each time you express the same idea. If you use different words for similar concepts in legal documents, consumers may assume and courts may decide that you intended different meanings. For example, if you use the phrases "late payment" and "overdue payment" interchangeably, readers may think each phrase means something different.
In addition, as you draft your document, try to use short sentences, descriptive subtitles and headings appropriate lists, examples, and parallel construction.
Keep Sentences and Paragraphs Short
Long sentences with prepositional phrases and subordinate clauses are hard to follow. Try shortening sentences to an average of 25 words. Consider the following example that explains the "Average Daily Loan Balance." (It is part of the method used to compute finance charges in some open-end credit plans.)
To get the "Average Daily Loan Balance," the Bank took the unpaid cash advances balance at the beginning of the billing cycle, added to it any unpaid FINANCE CHARGE on cash advances from the prior billing cycle, then each day in the billing cycle, added any new cash advances, and subtracted any payments, credits, and unpaid finance charges. This gave the Bank the daily loan balance. Then, the Bank added up all the daily loan balances for the billing cycle and divided the sum by the number of days in the billing cycle. This gave the Bank the "Average Daily Loan Balance."
Compare it with this much simpler version:
We figure the Average Daily Previous Balance as follows:
We start with the Previous Balance shown on your statement.
Each day of the billing period, we subtract payments, credits, and unpaid finance charges, and add new purchases and debits, giving us the daily balance.
We then total the daily balances and divide that total by the number of days in the billing period to arrive at the Average Daily Balance.
The second example is easier to understand because the sentences are short, and they show the sequence of the calculations in a series of steps.
Make Subtitles and Headings Descriptive
Subtitles and headings are particularly important in long, complex documents, such as credit agreements. Titles and headings help the reader separate ideas, see the logical flow of the document, and locate specific information quickly.
Make sure the heading explains what the section contains. For example, a section that follows the heading: "What to do if there is an error in your bill" should only explain what the consumer must do to resolve a billing error.
In composing shorter, less complicated notices or letters, consider using typical consumer questions as titles or headings. For example:
What should I do if my card is lost or stolen?
How can I get an extra credit card?
Lists are useful for explaining complicated procedures and conditions. Be sure to introduce a list with a straightforward "Plain English" statement such as:
If you think your bill is wrong or if you need more information about an item on your bill, here is what you must do to preserve your rights under the Fair Credit Billing Act.
People better understand information when it refers to specific situations. The following paragraph from a credit card agreement explains what happens when a customer has a "credit balance."
People better understand information when it refers to specific situations. The following paragraph from a credit card agreement explains what happens when a customer has a "credit balance."
For example: Your billing date is the first of each month, and you paid your August balance in full. In early September, you returned charged merchandise that cost $150.00. Because your balance was zero, we owe you $150.00. Your October 1 billing statement will show that we owe you $150.00. You may then choose to: (1) leave the money in your account and we will apply it against future purchases; or (2) ask us to return the money to you.
Use Parallel Construction
Parallel construction in "Plain English" documents basically requires agreement of phrasing in clauses and lists. For example, this list does not use parallel construction:
If you think there is an error on your bill, write to use and include:
Name and account.
Could you give us a description of the error?
How big the error is.
Please give us any other information to help us identify the transaction.
A simple adjustment is usually all that is needed to make the structure of a sentence or list parallel:
your name and account number
a description of the error
the amount of the suspected error; and
any other information that identifies the transaction.
Whenever possible, avoid inserting sentences in the middle of a list. They may break the reader’s concentration and leave the rest of the list unconnected to its introduction. For example:
You may use the automobile in any way that you wish, as long as you do not:
use the automobile for illegal purposes;
use the automobile for hire (for example, as a taxicab);
permanently change the place where you told us you would keep the automobile. You must notify us if you want to permanently move the automobile;
sell or otherwise transfer your interest in the automobile to someone else. You must notify us if you want to sell or transfer the automobile.
Making your document visually clear and attractive will help your customers understand it better. If your "Plain English" forms have narrow margins, small type, and a sea of uninterrupted text, they could still be as difficult for your customers to read as if you had not made any improvements.
Good graphic design in a printed document involves a number of elements, including:
capital letters, and
color (of both type and paper).
1. Choose Type that is Easy to Read
Credit contracts and disclosures will be easier to read if you pay particular attention to typesize, typeface, and weight of the type. Remember that some federal and state consumer credit laws require using certain typesizes. Other laws require using larger or boldface type to emphasize key disclosures.
Typesize greatly affects the legibility of written communications. The size of type is measured in "points." For example, 6-point type is used in classified newspaper advertising and 10-point type is used in newspaper articles. The size of type you choose to use in your credit documents can help make them easier to read.
Typeface also affects readability. There are two classes of typeface: serif (letters with small extensions) and sans-serif (letters without extensions). Whichever typeface you select, choose one that is easy to read. And, try not to mix typefaces; consistency aids the reader.
Weight of Type
Type comes in several weights (or thicknesses). A medium-weight type may be best for ordinary text. Boldface can be used for headings, emphasis, and for certain disclosures, as required by law.
2. Use White Space Effectively
White space can add to the attractiveness and legibility of your printed document. This involves use of margins, "leading" (space between lines), and line length.
Generous margins and ample space between paragraphs can make your text easier to read and call attention to your message. You can place headings in the left margin for emphasis or you can also indent lists of items to make them stand out.
"Leading" is the amount of space between the lines of print. One to three points of leading with 10-point type is usually adequate. A little extra leading can make a printed credit document easier to read.
The length of the lines of print also affects ease of reading. A printed line that is too short requires too much eye movement for easy reading. The optimum line length for reading ease usually is between 50 and 70 characters.
3. Use Capital Letters Selectively
Many contracts use all capital letters for emphasis. This technique, however, actually makes copy more difficult to read. Compare this paragraph from a collection letter:
YOUR PAYMENT IS OVERDUE. IF FOR ANY REASON YOU CANNOT MAKE PAYMENT NOW, PLEASE CALL US AT 123-456-7890 TO DISCUSS YOUR PLANS FOR PAYMENT. IF WE DO NOT HEAR FROM YOU WITHIN 20 DAYS, WE WILL REQUIRE PAYMENT OF THE ENTIRE OUTSTANDING BALANCE ON YOUR ACCOUNT AND WILL TAKE THE NECESSARY STEPS TO COLLECT IT.
with the following "Plain English" version of the same collection letter:
Your payment is late. If you cannot make your payment now, please call at 123-456-7890. If we do not hear from you WITHIN 20 DAYS, we will take the steps necessary to collect THE ENTIRE AMOUNT that you now owe us.
If you want to emphasize more than a few words in a printed document, you also can use another technique, such as boldface, italic, larger, or colored type.
4. Use Color Wisely
Choose color for paper and ink that produce enough contrast for easy reading. In addition, use colors for emphasis. For example, printing the "ANNUAL PERCENTAGE RATE" and "FINANCE CHARGE" disclosures in red ink, when the rest of your copy is in black or blue ink, will emphasize those terms. Too many colors, however, can confuse the reader.
Testing and Evaluating
To evaluate how well your new forms work, try testing them out. You can test your documents in several ways. Some companies use survey and "focus group" research to determine whether their revised forms meet their objectives. Others use readability formulas that evaluate the document based on the average number of words per sentence or the number of syllables for each 100 words. Generally, the shorter the words, sentences, and paragraphs, the easier the document is to read.
You also can informally measure your customers’ reactions to your new documents. Try showing the revised forms to a test group of customers, friends, and employees who fit your customer profile. To measure customer reaction, use criteria such as:
How long does it take people to read the forms?
How long does it take people to find the answer to a specific question?
How many times must people read the forms to paraphrase the information accurately?
This kind of testing can tell you if your revised forms meet your objectives, or whether they still need some adjustment before you use them. Finally, once you successfully simplify your letters and forms, you may find that publicizing your "Plain English" efforts attracts new customers to your services or products.
For More Information
The FTC works for the consumer to prevent fraudulent, deceptive, and unfair practices in the marketplace and to provide information to businesses to help them comply with the law. To file a complaint or to get free information on consumer issues, visit www.ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.
This information is provided under a cooperative agreement between the Better Business Bureau and the U. S. Federal Trade Commission (FTC), which has prepared this information. The FTC works to prevent fraudulent, deceptive and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid these practices. To learn more about the FTC and its services, visit www.ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261.