In March 2007, Senate hearings examined abusive practices of
many credit card issuers. One of the leading focuses was on
universal default.
What is Universal Default?
Universal default is a practice in which a credit card issuer
will raise your interest rates because of late payments or other
signs of weaknesses on other credit items. Creditors practicing
universal default can raise your interest rates on all of your
accounts, even if you were late on only one account.
It doesn't even matter if it is a different credit card
issuer altogether. The penalty still applies.
Which Card Issuers Ended Universal Default?
Citibank announced it would end universal default penalties
in March 2007. Their announcement came at the same time as the
Senate hearings on abusive credit card industry practices. This
would end universal default and any time for any
reason rate increases.
On November 20, 2007,
Chase also announced that it would end
universal default practices effective March 2008. Other card
issuers are expected to follow suit.
Why is Universal Default Ending?
Citibank and Chase have voluntarily ended this practice that
has been criticized by consumer advocates. Other major creditors
will likely follow, while some of the more abusive cards will
retain universal default until the bitter end.
Credit card issuers recognize that some members of Congress
are rebuking them for abusive practices. This is their way of
voluntarily policing themselves in an attempt to avoid
congressional action.
Such legislation would further restrict credit card issuers
and could weaken their ability to earn massive profits in the
future. Therefore, expect credit card issuers to try to avoid
such limitations.
Industry advocates will lobby Congress to avoid restrictive
legislation. Consumer advocates will try to convince members of
Congress that further action is necessary.
