Lending Club Blog

Universal Default by Any Other Name Still Stinks

I’ve written about universal default in multiple posts over the past few months. Here’s an overview post. Even as some credit card issuers are discontinuing use of the technique, they continue to employ another practice that has the same effect.

For those who haven’t read the prior posts, universal default is the practice of credit card companies jacking up your interest rate based on a late payment to another loan or credit card. The practice has met strong resistance from consumer advocacy groups, and Congressional hearings have even been held to pressure card issuers to discontinue the practice.

While there has been some progress in reducing the incidence of universal default, with the major card issuers claiming to no longer use it, many card issuers still enforce policies that raise customers’ rates when their credit score decreases. While a late payment to another loan or credit card is only one reason why your credit score could decline, this policy nonetheless would likely penalize consumers in instances where universal default would have applied. The reason for the rate increase may be slightly different, but the underlying cause is often the same. In fact, raising rates for a drop in credit score is even unfriendlier towards consumers than universal default. At least with universal default, you had to do something wrong, namely pay another bill late. There are many instances where consumers may see their credit scores drop without doing anything wrong. Applying for a mortgage, for instance, may lower your credit score in certain instances.

Chase and Citibank have recently discontinued the practice of hiking interest rates on customers whose credit scores decline, but the practice is still used by other major credit card issuers like Bank of America and Discover. It’s good to see some credit card issuers doing the right thing, but until all of them stop this abusive practice, consumers need to remain aware of its use.

Universal default is just one more reason to apply for a person-to-person loan on Lending Club to pay off your credit cards. In the process, you will enjoy fixed rates and predictable installment payments.

Thursday, February 28th, 2008 at 5:28 am

Comments (1)

  1. I recently wrote a post on universal default. Apparently, Citibank
    is the only company to date which voluntarily revoked the universal
    default clause in its contracts. I find the practice incredibly
    unethical and will never use a card which has a universal default
    clause. The practice is akin to them kicking you in the face and
    spraying tobasco sauce into the open wounds while your down.

    February 16th, 2009 at 5:53 am

Recommended

Welcome Home

Lending Club named #5 on Forbes’ Most Promising Companies List

Get ready for tax season with Lending Club’s Tax Form Guide

New Adjusted Return Metric

See more
Lending Club Awards
  • Archives z

Recent Posts

We’ve acquired a company!

Today we’re excited to share the news that we… Read More »
April 17, 2014

Lending Club customer information safe from Heartbleed Bug

You may be hearing about… Read More »
April 11, 2014

New: Loan Origination Data Update

An update for users of our platform statistics and… Read More »
April 3, 2014

Lending Club Launches Business Loans

Today, Lending Club announced the launch of business loans… Read More »
March 20, 2014

Lending Club Extends Privacy Protections for Borrowers

At Lending Club we pride… Read More »
March 19, 2014

How to Protect Yourself from Online Scams and Swindles

It is more important than… Read More »
February 11, 2014

New Statistics Charts to Help Investors Understand Returns

At Lending Club, we believe… Read More »
February 6, 2014

Welcome Home

I became a U.S. citizen earlier this month. When… Read More »
January 27, 2014

Lending Club named #5 on Forbes’ Most Promising Companies List

Lending Club has won the… Read More »
January 24, 2014

Get ready for tax season with Lending Club’s Tax Form Guide

Tax season is coming. To… Read More »
January 13, 2014