Universal default is the term used to describe policies that allow credit card issuers to increase your interest rates based on changes in your consumer credit reports.
Universal default permits a credit card company to increase your APRs solely because you fail to make a payment on a loan with another lender or your credit history contains other negative information.
Universal default policies allow a credit card issuer to increase your APRs, even if you never make a late payment or default on your credit card with that particular company.
Credit card companies justify this practice by following the logic that they are lending consumers money at interest rates which are based on certain risk factors, and if the risk factors increase, then so should the interest rates they charge to compensate for taking the risk that the consumer will default on their loan.
Consumer activists, on the other hand, contend that universal default policies are unfair, because they increase interest rates on money that has already been borrowed, plus they victimize consumers and spiral them into debt for infractions as minor as being just one day late on any payment.
In addition, it seems to go against the basic principle of good customer service, which is to treat your customers with respect, not to mention one of the basic human testaments, which is to treat others as they treat you, meaning don’t raise rates on your customers if they have followed their end of the bargain.
Many credit card issuers have done away with universal default policies, including Capital One and Citibank; however, it is still widely practiced and often hidden in the legal language of the credit card agreement booklets you receive with your new credit card.
It is important to read these terms and conditions closely, because even though issuers may not directly indicate universal default policies within their agreements, they often mask these policies through legal language that gives them the power to change your rates at any time for any reason, effectively allowing them to universally default your loan at will.
However, these credit card agreements are confusing by design, and according to their own policies, credit card issuers can change their policies at any time, so you’re really at the mercy of the credit card companies.
We ask that any readers who have experienced the effects of universal default policies share their experiences in the comments section of this article.
If we complain enough about universal default policies and the credit card companies that practice universal default or similar policies, these policies and the policy-makers will continue to change.
For more information on universal default policies and other credit card consumer issues, check out Secret History of the Credit Card, an investigation by FRONTLINE and the New York Times into deceptive credit card practices, which includes the full program online and additional credit card resources.
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