What is Universal Default?

Written by admin - Leave a Comment

If you’ve ever read the fine print of your credit card agreement, then there’s a pretty high likelihood you’ve run across the term “universal default.” But do you actually know what it means?

In short, a universal default clause states that if you’re late on a payment to any creditor and your card issuer finds out about it, they can change the terms of your agreement from the normal terms to the default terms. In other words, if Bank A learns that you’ve defaulted with Bank B, then Bank A can treat you as if you’ve defaulted with them, even if you haven’t. In practice, this means that they can jack your interest rate up sky high — on average, default interest rates are in the neighborhood of 24%.

While proponents of this practice argue that the increased rate is necessary to offset the increased risk associated with lending you money, universal default can have dire consequences for someone who is struggling to keep their head above water. Indeed, even if such a person is current on the majority of their payments, defaulting with one lender can trigger rate increases with other lenders, causing the customer to fall behind across the board.

While there has been a lot of talk about restricting “abusive practices” such as universal default, these efforts have generally gone nowhere fast. However, in 2007, Citibank became the first bank to voluntarily eliminate their universal default provision.

Share and Enjoy:
  • del.icio.us
  • Digg
  • Facebook
  • LinkedIn
  • Twitter
  • Yahoo! Buzz

Comments (scroll down to add your own):

None so far - share your thoughts and be the first!

Leave a comment

Subscribe without commenting

Get free updates...

Articles via e-mail:

Search this site...


Credit card resources...

Recent articles...

Recent comments...

Most talked about...


    The terms of third-party offers referenced on this website are subject to change without notice. While we strive to maintain timely and accurate information, offer details may be out of date. Visitors should thus verify the terms of any such offers prior to participating in them. Please see our terms of service for additional details.