Design for Deleveraging

Inspired by the ballot-redesign initiatives done by the folks at Design for Democracy, I spent a few minutes this week applying their principles to something that’s always bugged me: sleazy consumer lending practices. Back in my younger days, I let my credit card balance get out of hand (as I suspect a lot of people do in young adulthood). After I got married and my fabulous wife and I attacked our debt together, we realized that overspending was just one aspect of the problem. The other big part was just getting a handle on what was going on with each credit card — what you’re being charged, what kind of impact a minimum payment would make on your bill, and so forth. I’m an Excel whiz so I was able to put together a spreadsheet to deal with this, but it shouldn’t take a computer and a piece of software for the average consumer to figure out what their credit card is costing them each month.

There are basically three pieces of information you get when you receive your credit card bill:

  • What is my balance?
  • What do I need to pay this month to keep them from repossessing my sofa?
  • What is all this crap I charged up on this card, anyway?

Credit card companies do an OK job of giving you this information on the monthly statement, although the way they present it is inconsistent from one company to the next (which is a problem). But there are actually two more important pieces of information that most people would find pretty vital:

  • When will I pay off this ding-a-dang debt?
  • What is this ding-a-dang debt costing me?

To incorporate all this information, I came up with a wireframe design for a standard credit card statement. The specifications of this statement would become part of federal banking law (think of it as an aspect of the truth-in-lending statutes that have been on the books for years). The intention is to increase transparency in consumer lending and, indirectly, to encourage people to pay off their debts.

The wireframe looks like this:

The idea here is that the design of a credit card statement would be exactly the same across all credit card providers. The only variance would be in the upper-left corner: the provider would be allowed to put their logo and return address in that space, but nothing else. Every other design aspect of the statement would be described in a statute. No company would be able to issue credit cards without redesigning its statement to conform with this design, and we’d ban companies from putting all the other useless crap (cross-marketing, etc.) into the envelope along with statements — there shouldn’t be a frequent flier offer keeping you from actually looking at your balance each month. The contents of the envelope would contain nothing but the billing statement, and at the very top of the billing statement, in big bold text, would contain your exact balance, the amount the debt costs you each month, the minimum amount you need to pay, and a recommended payment amount.

The “recommended payment” amount is a new concept. It’s a simple figure that tells you how much you’d need to pay to get rid of your debt in 12 months based on your current balance and interest rate. It would also be nice if the concept of the “minimum payment” were legally changed so that it would never be smaller than the amount you’d need to pay to get rid of your debt in five years (just like a car loan). Right now lots of credit cards give customers minimum payments that would, in effect, take decades to pay off, and unless you’re handy with a spreadsheet, this might not be immediately obvious.

It would still be possible to run up absurd debts using credit cards, but hopefully this design and the new rules (particularly the “minimum minimum” and “recommended” payment amounts) would go along way toward avoiding “gotcha” debt traps, particularly for less sophisticated consumers.

In a world in which too much debt is threatening to cause society as we know it to collapse (and bankruptcy laws no longer enable consumers to discharge all their debt), this seems like a pretty modest proposal.