Chase Card Services announced that it will cease to penalize cardholders that made a late payment on other credit cards. Chase will no longer raise interest rates based on a review of a customer’s credit report. Their clear and simple program begins in March 2008.
What is universal default? Who else is ending universal default? Here are the answers, and a sign of the newest trend about to hit the credit card industry.
What is Universal Default?
Universal default is a widespread practice in which credit card issuers look for reasons to raise your interest rates. These interest rate hikes can raise your rates above 25 or even 30 percent.
If you have ever looked at your credit report, you may have seen numerous Account Review inquiries. These are frequent credit checks that your credit card issuers conduct to review your other credit items.
Making a Capital One payment a week late, for example, would cause your Capital One interest rate to increase. Previously, Chase would see this late payment on your credit report and also increase the interest rate on your Chase account, even if you had a perfect payment history with Chase.
Chase technically ended its universal default practices in 2005. However, it continued to monitor credit reports to look for reasons to raise interest rates. Now such penalties will only be incurred for late payments, bounced payments and exceeding the credit limit.
Who Else is Ending Universal Default?
The announcement by Chase in November 2007 follows a similar announcement by Citigroup in March 2007. Citigroup previously announced it would cease universal default practices and any time for any reason rate increases.
The change by Citigroup was announced at the same time of the Senate hearings on abusive practices by credit card issuers. Many consumer advocates saw this as an attempt to prove to Congress that credit card issuers could be trusted to police themselves.
Many other credit card issuers still enforce their universal default clauses. It is unlikely they will change their practices without an act of Congress. Still, there is an obvious trend toward universal default clauses weakening.
