Universal default clause

Most people who hold credit cards, and that’s just about everyone, knows that the interest rates charged by the credit card companies are higher than those charged for other types of loans, such as a home equity loan. Any consumer who has ever made a late payment on their credit card also knows that doing so may inspire the credit card company to raise their interest rate, sometimes substantially. It is not uncommon for those who pay late to see their interest rates rise well above twenty percent per year. Because of this, most cardholders make an effort to pay their bills on time, often paying online in order to avoid having the check lost in the mail.

From now on, these cardholders had better make sure that all of their bills are paid on time, and not just those from the credit card companies. As many as one third of the major credit card companies now include something know as the “universal default clause” in their cardmember agreement. This information, usually disclosed only in the fine print of the bill or in a separate document mailed to cardholders, indicates that the card company may raise the interest rate on your account if you make a late payment on most any bill. They may do this even if you pay your credit card bill in a timely manner.

This means that a late payment to any lender, such as the local light company, the phone company, or your internet provider, could lead to a higher interest rate on your credit card!. Making matters worse is the fact that doing so could also negatively affect the score on your credit report. At the moment there is nothing in Federal law prohibiting this practice; the law merely requires that cardholders be notified of this clause in writing. The universal default clause is defended by credit card companies, who say that those customers who make late payments negatively affect all lenders. Few of their customers, however, are even aware that this clause exists in their account documentation.

It should be noted that most charge card companies do not employ such a policy at this time. Such trends tend to spread rather quickly throughout the industry, though, particularly if no one complains about them. Customers who would not care to see the interest rate on their cards affected by their ability to pay their cable television bill on time would be advised to carefully read their acount documentation. Anyone who finds such a policy in place with their card company should contact them and express their dislike for the policy. Alternatively, they should shop around for another card from a company that doesn’t employ such tactics.

The lesson to be learned from the universal default clause is an important one -- it is always worth taking the time to read the fine print in your charge card terms.

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