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Universal Review and Default Rate Disclosure

By Erik Folgate

Did you know that if you’re close to reaching your credit limits on some of your credit cards, the interest rate on a completely unrelated credit card can get jacked up? Or if you miss a payment on one credit card, your other credit cards can increase your interest rates?

For example, let’s say you have a credit card with U.S. Bank and you’ve reached your credit limit. Not only can U.S. Bank increase the interest rate on the credit card, but also if you have a credit card with another bank—let’s say, Washington Mutual—they can mess with your terms by increasing your interest rates and lowering your credit limit, even though you may not even be using that card!

It doesn’t seem fair, does it? But, it’s perfectly legal.

This practice is generally referred to as a “universal review.” And more and more lenders are using this trick to fill their pockets at the expense of an unknowing public.

You may not have late payments with the credit card that raises your rates. In fact, you may not have any late payments on any credit cards. However, your lender may simply decide that because you were using your other credit cards, you somehow became a greater credit risk to them—so they may nearly triple your interest rate.

Steps to Resolve a Negative Outcome from a Universal Review

If your credit card lender does conduct a universal review on you and you’re negatively affected by their decision—here’s what to do:

Step 1: Contact your lender immediately and determine why the lender feels you’re a greater credit risk…and then fix it, if it’s fixable. It could be as simple as giving them updated income information.

Step 2:
If the lender’s answers don’t sit well with you, begin interviewing new lenders. Call and request credit card applications. You can use this Credit Card Comparison Worksheet to compare each program.


Step 3
: After you have compiled your list and found a lender that will give you acceptable terms and rates, contact your original lender and tell them you are considering closing the account.

Remember, before you begin this cat & mouse game, have a “Plan B” in place. Just make sure “Plan B” doesn’t use the same or worse practices as your original lender.

Universal Default Interest Rate Disclosure

It used to be that your default rate was triggered when you did something wrong in managing your credit account. For some credit card issuers, it still is. However, more and more lenders seem to be expanding the definition of what default means to them.

Here’s a Washington Mutual universal default disclosure as of June 2007…

“We may change APRs [to 31.99%], fees, and other terms of your account at any time…Factors we may consider in determining whether and how to change your terms include the frequency and severity of defaults and other indications of risk on accounts with Washington Mutual and/or other creditors.”

Ouch!

Washington Mutual isn’t just interested if you default on your loan with them…but they’re watching all your accounts with all your creditors—just waiting for you to make one tiny mistake, so they can sock you with higher interest rates.

The particular language above is for a card that offers a 0% introductory rate and a 9.9% regular rate. Imagine going from 0% to 32% after one missed payment. That’s the kind of disaster you want to avoid.

The worst part is, most of the time they’re not just raising your APR on new purchases…but on your entire balance.

There really isn’t any other business that gets away with this stuff. For example, imagine if you went to your local supermarket to shop for groceries. The same supermarket you’ve been going to for years. And when you get to the checkout line they see that you bought a lot of groceries at another supermarket across town and have less money in your checking account than you normally do. So they decide to charge you more for your groceries than they do their other customers.

You wouldn’t stand for it—would you? But that’s essentially what the credit card companies can now legally do. They can jack up your interest rates because of increased activity with other lenders.

Steps to Do When You Get Zapped By a Lender’s Expanded Definition of Default Interest Rate

Step 1: Let the Better Business Bureau know that you don’t like the practice of universal review. If enough people complain, then something may be done about it.

Step 2: Write your Congressional leaders and tell them how much you despise these underhanded tactics.

Step 3: Find a lender that doesn’t have a universal review clause in their agreement (Fore example, Citibank has recently discontinued their universal review policy…for now). If there is a default rate, it has to be disclosed and they have to tell you what triggers it. Look for the asterisk (*) next to the interest rate, and find the corresponding fine print to see what the policy is.

Step 4:
Write a letter to your universal review lender putting them on notice that you will consider closing your account within 30 days (be prepared to follow-through). Avoid closing the account if you can. A better strategy may be to transfer your balance to a new card that is void of universal anything and don’t use the universal review card while it remains open.

Step 5: Telephone the lender a week before your self-imposed 30-day time period expires and see if they are willing to renegotiate their terms.

Step 6: Now that you’re aware of universal review and universal default, begin to read the fine print.

Lenders’ Definition of Default

So, to sum it all up, banks and lenders are now defining “default” to include:

* Failing to make a payment to another creditor
* Making a payment that is not honored (like bouncing a check or an NSF) by your financial institution
* Closing an account
* The timing of your delinquent payment (whatever that means?)
* Paying late just one time
* A change in your credit history
* An increase in your total outstanding debt
* An increase in the use of your credit lines
* Your account being over its limit

Looks like even if you do everything right they can still jack up your interest rates! The penalty for breaking any of these rules? Your interest rates can jump as high as 32%.

If those are the rules, fine. But we need to know the rules before we start to play the game. Unfortunately, that means we may have to get out our magnifying glasses and read that tiny print with our legal dictionaries at hand.

Lenders have lowered the bar on their ethics. It’s up to us to read the fine print and play their game.

Article written by Stephen at Life After Bankruptcy

Erik Folgate
Erik and his wife, Lindzee, live in Orlando, Florida with a baby boy on the way. Erik works as an account manager for a marketing company, and considers counseling friends, family and the readers of Money Crashers his personal ministry to others. Erik became passionate about personal finance and helping others make wise financial decisions after racking up over $20k in credit card and student loan debt within the first two years of college.

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