"Change in Terms" -- What Banks Don't Want You to Know

Posted by Merry Richter :: June 18, 2007 @ 2:20 pm

Did you know that many credit card issuers will charge you their default rates if you are late with a payment on a completely different account? This long-standing practice is called "universal default." It can especially hurt cardholders if there are errors in their credit reports.

The way it works is that credit card issuers routinely pull customers' credit reports to see if cardholders are current on their other bills. If they spot instances of delinquency on other accounts, they raise the consumer's rate to the default rate as a way of penalizing the cardholder for late payments.

According to Consumer Action's 2007 Credit Card Survey, many of the top credit card companies claim they no longer have universal default practices. In reality, card issuers have simply renamed the penalty and moved it to the "change in terms" section of the cardholder agreement. It often goes unnoticed by consumers.

Card issuers state in these sections that they can raise their rates at any time for any reason. Consumer credit information is often mentioned as one of the factors for such rate hikes. The Consumer Action link cited above contains the policies of the top ten card issuers.

It appears that Congress is upset about these practices. The debate is now whether to force industry standards through legislation, rulemaking or to allow card issuers to voluntarily come up with their own standards that hopefully eliminate these practices.