Finally, a (Small) Win for the Little Guy!

Have you ever heard of the Universal Default clause? Me neither. I may have a voracious appetite for reading, but that credit card fine print always gets past me somehow. I’m sorry I didn’t pay closer attention. The Universal Default clause is a gimmick (scam, rip-off, cheat, swindle -- pick your own verb) thought up by the credit card companies to rack up as much profit as inhumanly possible.

How it works is this, let’s say that you miss a payment or make a late payment on one of your credit cards and your interest rate on that card gets raised. That’s bad, but somewhat justifiable. Unfortunately, the credit card issuer of your other credit cards can now raise the interest rate on their card, because of you missing or making a late payment. It had nothing at all to do with their credit card, but you are penalized, nonetheless. DebtStoppers attorney, Rob Semrad, addresses this particular issue in this free video, which can be found in the DebtStoppers Video Learning Center.

You might be thinking that just because you never ever miss a payment or make a payment late, that you’ll be fine. You’ll also be wrong. If you use a credit card up towards the top of its credit limit, your other credit card companies can change your rate, because you will now be considered a higher risk. Even if you did nothing wrong; you’ve made your payments on time, never went over the credit limit. It’s called a universal review. It’s a maneuver that is totally unethical, but entirely legal… at least, for the time being.

With all the talk of the great big $700 billion financial bailout before the U.S. Congress, you may have missed something that will hit a little closer to home. The Credit Cardholder’s Bill of Rights or HR 5244 was put before the House last week, and won approval by almost 200 votes.

There are some very important changes to credit card rules and regulations which will have a tremendous (favorable!) impact on the consumers who carry credit cards. Not the least of which is the elimination of the Universal Default clause. Banks will also be prohibited from changing interest rates whenever and however they want; they will not be allowed to change interest rates retroactively and it would create proportional allocation of payments.

That last one is a good fix – say for example you pay different interest rates for purchases than you do for a cash advance, that’s pretty standard across credit card companies. When you make a payment towards your outstanding bill, the payment goes first to the interest on the type of purchase which has the lowest interest rate, not the highest.

Naturally, the banks are complaining bitterly. They’re already in a mess (of their own doing, if you ask me) and their credit card profit margins are down. Just so you know, as an industry, the credit card companies earn in the $30 billion range annually. So, they’re a bit upset. Oh, boo hoo. Tell it to someone who cares (he’s probably vacationing down in Crawford, though).

Consumers have been complaining for years about these unethical credit card practices, and no one listened. Until last week. Now, the House’s passage is only the first step; HR 5244 still has to make it through the Senate and then needs to be signed by the President. It wouldn’t hurt to call up or email your Senator and tell them how important it is to you as a consumer to pass that bill. Certainly (hopefully), when it reaches his desk, the President (whoever he may be) will gladly sign the Credit Cardholder’s Bill of Rights into law.

For some people, HR 5244 might be a case of too little, too late. These are the consumers already burdened with heavy credit card debt; DebtStoppers attorneys can help you even more than any legislative act. If you’re looking to ease your debt burden, contact us and we’ll show you your options.

--Debt Diva

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