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Connie Prater

Kiss universal default goodbye

JP Morgan Chase this week quietly marked the end of one of the most reviled credit card industry practices in recent years: hiking cardholders' interest rates based solely on their declining credit scores. Known in the industry as universal default, the practice has been roundly criticized by consumer advocates, members of Congress and consumers. Paying a utility bill late, missing a payment on a different credit card, having too many inquiries on a credit report or being rejected for a credit application may all potentially lower a credit score.

Until March 1, 2008, a lower credit score could trigger an interest rate hike for customers regardless of whether they paid their Chase bills on time. Chase announced in November 2007 they were doing away with the practice -- which consumers complained was blatantly unfair because credit scores can be lowered for reasons beyond the consumer's control.

Other major issuers have already taken this step. Citi announced in March 2007 it had done away with both universal default and "any time any reason" changes in terms of credit agreements. Bank of America has said it does not engage in the practice.

According to Chase Card Services spokeswoman Tanya Madison, the new policy went into effect and advisers at Chase call centers were "briefed on policy and practice changes" so they could respond to customer inquiries. She says they also ran announcements in some local print and broadcast media.

Just in case you missed the word, you read it here.

Now, this doesn't mean they can't hike your rates. If you miss a Chase payment or pay late too many times you may still be hit with an increase. Also, as credit has tightened in recent months amid stagnating bank earnings, many credit card issuers have re-assessed risk for many accounts, jacked up rates and slashed credit limits (even for those with good payment records).

Clear and simple
This month, Chase is celebrating the one-year anniversary of its "Clear and simple" campaign, a program designed to help Chase account holders better manage credit and pay their bills on time. Account management tools allow customers to receive alerts to avoid late fees or going over their credit limits.

Those who sign up for Chase's automatic bill payment tool and who make on-time payments for 12 consecutive months can have their interest rates "reset" (or rolled back) to previous, lower non-promotional rates.

Madison says the program started in May 2007. Although it hasn't run a full 12 months, some customers have gotten rate resets, she says. Chase won't reveal how many cardholders have been rolled back.

See related: "Regulation Z: Feds move to change credit card rules," "Blog: House introduces Credit Cardholders Bill of Rights"

8 Comment(s)

Sylvia said:

So you know, this is a publicity lie by Chase. They recently acquired Wamu's credit card division - Wamu credit card holders now see JPMorgan Chase when they log in - and put universal default into effect. How do I know? I was subject to it. My credit report has an error I've been trying to correct - a store card reported me as defaulting even though I have cancelled check proof of the entire payment - and JPMorgan Chase used this as the reason this month for hiking my interest rate to 24.99% APR. Even though I've not only paid on time to Wamu for years - never late once, always paying the bulk or all of my balance. You should look into it because "press" like this surely lures people to sign up for their cards, only to find that they are in fact still engaged in that practice. And then it's too late.


AS said:

Sylvia:

You are right, they did the same thing to me. Had a nice fixed rate and all of a sudden upped it because they did not send a statement on time. Like you, been paying on time for years but of course, the fixed rate was a deal and we can't be letting banks get free tax payer bailout money while they jack rates up on everyone else.


Eric Lee said:

I called Bofa today and asked them a hypothetical question regarding a current credit card account i have with them. I asked them what would happen to that account if my credit score had dropped and they told me straight out that my apr would probably be raised on my current balance and that my credit limit would be frozen. So I don't know what they're talking about when they say they don't engage in universal default. Am I assuming something wrong here? What if someone foreclosed on a home and ruined their credit score? Is that considered as part of universal default?


Eric,
Thanks for your question. Note that the new credit card rules approved Dec. 18 by the Federal Reserve and other regulators limit the reasons that credit card issuers can increase interest rates on existing credit card balances. This in effects puts a clamp on so-called "universal default" practices. Unfortunately, those new rules do not kick in until July 1, 2010. Congress is hoping to pass legislation this year to enact even tougher credit card rules that would take effect sooner to help people currently struggling with credit card debt.
Read more on this in my articles: http://www.creditcards.com/credit-card-news/what-the-new-credit-card-rules-mean-1282.php and http://www.creditcards.com/credit-card-news/credit-cardholders-bill-reintroduced-1282.php
What can you do in the meantime? http://www.creditcards.com/credit-card-news/how-to-cope-until-new-credit-card-rules-take-effect-1267.php


Terri said:

July 2010 is too late. By then many Americans will be forced to go bankrupt because of the greedy bank who practice this. It also hurts the banks who do not practice UD, because when the greedy ones do it, many people will be pushed over the edge and forced to default. Treat us like a risk, and I guess we have to become one. Unreal. What a mess. Thanks greedy banks. What good is paying on time day in and day out if banks get to do whatever they want? Just because my customer pays his car payment late, should not mean I get to steal more money from his account to pay his bill to me. WHAT A JOKE!!!!!! JULY OF 2010 IS WAY TOO LATE!


Leona said:

I had the same problem as Sylvia. It was so close for December 2008 payment so I sent the same amount I did the last month (I always send more than minimum amount) so it wouldn't be late and lose my low interest rate, only to get my interest rate changed from 5.99% to 29.99% because the payment I sent was $18.00 less ( still haven't figured that one out). Then when I transferred from another account to pay it off they sent the first payment back and charged me a $32.00 returned check fee but excepted the payment the second time, from the same transfer check and I also had Chases' payment coupon with all my info in there. I was told I put the wrong account number on the transfer check the first time but they sure had no problem with it the second time. The representative I spoke to was very rude. I've been through some crazy stuff with creditors in my 35 years of owning credit cards but this deal was a first for me.


Chris said:

I have a Shell gas card and have NEVER misses a payment and today I found out that I no longer have a line of credit???? Went to use the card and BAM card refused. I was totally shocked. Beware people.... these card companies can not be trusted. Well more to the point... do not go out anywhere without some cash, because you may think you have credit when you don't.


Connie said:

Chris,
Carrying a little cash is always a good idea, but is even more important in these days of shifting credit card terms.
Are you sure you didn't get something in the mail from Shell about closing the account?


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