Credit Card Rip-Off Alert: UNIVERSAL DEFAULT

by Wayne Quigley

If the ability to raise your interest rate on a credit card just because you were late with a single payment wasn’t bad enough, the credit card companies have come up with another excuse to gouge you even more, with a scam called ‘Universal Default.’

Are you a victim? Has that 5% interest card suddenly jumped to 29%?

Even if you made every single credit card payment on time, this rip-off allows the bank to raise your rates, seemingly on a whim, simply because you were late with a payment to some other creditor.

For example, say you have a credit card with your bank, and its interest rate is a low 6% (Note - you can get even lower rates if you shop around - carefully!) as long as you make your payments on time.

Now, you have a mortgage through another company, say, Wells Fargo, that is infamous for taking up to 12 days to process a payment, and charging you a late fee for the privilege of your check sitting on someone's desk for a week.

Your payment is processed after the due date; they report it to the credit bureau. Your bank does a routine scan of your credit report, even though you never asked for any additional credit, and were never late with a payment to them. They see that late payment, and BAM! They raise your interest rate on that credit card to a whopping 29% or more. (They can legally charge you as much as 40%)

They don't even have to tell you they raised it other than it shows up in the fine print on your next statement.

Is this fair?

Nope, but it's legal, all because of a simple rule called 'Universal Default.'

Universal Default simply states if you are late paying anything to anyone else, your other creditors have the right to raise the interest rates they charge you.

Now, here’s the good news: Only about 25% of credit card companies have a Universal Default clause in their user agreements. That leaves 75% of them that don’t use it.

Check your user agreements out on your existing cards, and if they have Universal Default, get rid of them. Find a company that does not use it, and move the balances to the new one. Cancel out your old cards, and be sure to tell the company to close the account completely, otherwise they may just mail you a new card in a few months.

Now, some things to look for: Most credit card agreements contain a clause that allows them to make changes to your agreements, simply by sending you a notice of the change. Just because the card does not currently have the Universal Default clause in it, doesn’t mean they won’t add it in later. Under the TOS (terms of service) your choices are to either accept the change, or pay your card off in full.

If you get a notice of change, write them back and ask them to not put the clause in the account, and tell them you will close the account if they do. They want your business, and may be willing to drop it if you ask. Keep in mind that if you have a large balance, they may refuse knowing you won’t be able to pay it off.

Also, most, if not all, credit cards offering a zero percent introductory rate have the Universal Default built in, and usually have the highest interest rates if you default. Read the fine print carefully!

If you get bit by the Universal Default scam, write (don’t call) your credit card company and ask them to return the interest rate to it’s original level, and to drop the extra interest you were charged while it was in effect. They may ask you to provide a reason why you were late with the other creditor, or other explanation as to why they should reduce the rate. Be prepared to answer them.

You can also send a letter to the Credit Bureau contesting the late payment, and until they get a response from the creditor that reported you late, they have to remove it from your record. Once they have removed it, contact the credit card company again and ask them to restore the previous rate. Insist they drop the extra interest they may have already charged you.

Be advised they may be willing to do this only once.

Above all else, keep your eyes open for any unusual changes in your monthly statements.