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“