Credit Card Issuers Preempt Congressional Action
In March 2007, Senate hearings examined abusive practices of many credit card issuers. One of the leading focuses was on universal default.
What is Universal Default?
Universal default is a practice in which a credit card issuer will raise your interest rates because of late payments or other signs of weaknesses on other credit items. Creditors practicing universal default can raise your interest rates on all of your accounts, even if you were late on only one account.
It doesn't even matter if it is a different credit card issuer altogether. The penalty still applies.
Which Card Issuers Ended Universal Default?
Citibank announced it would end universal default penalties in March 2007. Their announcement came at the same time as the Senate hearings on abusive credit card industry practices. This would end universal default and any time for any reason rate increases.
On November 20, 2007, Chase also announced that it would end universal default practices effective March 2008. Other card issuers are expected to follow suit.
Why is Universal Default Ending?
Citibank and Chase have voluntarily ended this practice that has been criticized by consumer advocates. Other major creditors will likely follow, while some of the more abusive cards will retain universal default until the bitter end.
Credit card issuers recognize that some members of Congress are rebuking them for abusive practices. This is their way of voluntarily policing themselves in an attempt to avoid congressional action.
Such legislation would further restrict credit card issuers and could weaken their ability to earn massive profits in the future. Therefore, expect credit card issuers to try to avoid such limitations.
Industry advocates will lobby Congress to avoid restrictive legislation. Consumer advocates will try to convince members of Congress that further action is necessary.