Credit card companies get a lot of flak for their practices, which are often termed “sneaky,” “exploitive” and “unfair.” And one of the practices that has received a great deal of scrutiny is “universal default.”
What is Universal Default?
Universal default is a practice by which credit card issuers keep track of your spending habits with other issuers of credit cards. If you miss a payment—or even if you are late—with one credit card, your other credit cards will respond (usually by raising interest rates) as if you had missed a payment on their credit card. This practice can get expensive for consumers, who might find increased rates on all of their credit cards if just one payment is a day or two late.
Who Practices Universal Default?
Even though Capital One insists that it does not practice universal default, the company still defends the provision in credit card agreements and reserves the right to institute universal default. Other companies make similar claims but still reserve the right to engage in universal default policies. Money Crashers points out that Citibank and JP Morgan remain the only credit card issuers to actually have removed the universal default provision. (According to The Consumerist, Citi was considering reinstating universal default earlier this year.) Discover Card and Bank of America are some of the prominent issuers of credit cards that still have universal default policies.
Universal Default Comes to an End
One of the effects of the recent financial crisis has been a spotlight on consumer debt and practices by creditors and other financial institutions. As government leaders have taken a look at practices by credit cards, they have decided that universal default is unfair to consumers. The Federal Reserve has done what Congress has been unable (or unwilling) to do for years: halt universal default. Over the coming months, this provision will be among those that represent changes to credit card regulations in an attempt to protect consumers from the tactics credit card issuers have used in years past.
