Credit Card Debt & the Unfairness of the Universal Default Clause

Let's look at a real world example: A woman purchased a new $4,000 large screen TV a few months ago based on the knowledge her monthly payment was going to be $175, and based on the 9% interest rate charged by her credit card company. For five months straight she made all her payments on time, but in the fifth month she was late paying her mortgage bill, for reasons unknown. She found out a month or two later that her credit card company doubled her interest rate to 18%, thus increasing the payment for the TV to about $190 per month. Even though she was never late on any other payments, she found most of her other credit cards raised their interest rates as well. Even her car insurance company raised their rates. The net effect was she ended up paying nearly $200 per month more because she was late on a single mortgage payment.

This is a common result of a very little known or understood clause found in nearly every credit card agreement today. How would you feel if the company who sold you a product, based on certain arrangements (including the interest rate), called you up and said they were increasing your monthly payment for reasons that have absolutely nothing to do with them? Is this really fair?

Let's take this a step further. Could any customer call a company, that had sold them a particular product on payments, and tell them the re-payment to the company will now be lower because they had missed a payment to one of their suppliers? Of course not. This Universal Clause is extremely one- sided, making consumers victims of what one could easily ascertain as an unjust and unmerited practice.

Yet many powerful credit card companies continue to lobby Washington, arguing it is the consumer that needs to be held accountable to the terms and conditions of the contract, neglecting the most important element, that they are equally accountable to the same terms and conditions of the agreement. The Clause was introduced in the mid nineteen- nineties, after seeing an influx of bankruptcy filings in America. The credit card industry, fearing huge losses, decided to enact this little known clause referred to as "The Universal Default Clause". Simply stated, they feel the credit card companies should have the right to increase one's APR if a consumer is late on any other credit card or debt entity, including outside bills such as phone, cable or utilities. This clause is purely an excuse to collect more money for credit card companies who invoke the clause. Surprisingly enough it comes at a time when many cardholders need monthly relief, not additional financial strain. This clause creates a natural conflict between cardholders and credit card companies, and generates an adversarial relationship that leaves everyone bitter.

According to the Office of the Comptroller of the Currency (OCC) this is considered an unfair practice and has recently labeled it "Unacceptable". The Clause is usually hidden under the "Other APR's" section.

Our Advice: Please read each credit application carefully and avoid any card with this clause. Currently out of 45 banks issuing 144 cards, 44% use the Universal Default Clause.

Phil Andrews is currently the VP of Business Development for Precept Financial Solutions, a leading debt settlement firm based in Dallas, Texas. For more information, go to http://www.PreceptFinancial.com or call toll free 800-584-0855 and press option 2.

---

Drowning in Debt? Tips and Tricks for Getting Out of Hot Water with Creditors

Do you, like millions of other Americans, feel like you're... Read More

How Do I Lower My Debt Burdens?

How do I lower my debts?There are several ways of... Read More

What is Debt Settlement?

Debt settlement is the process of negotiating with your creditors... Read More

Debt Elimination 3

Planning To Achieve Debt EliminationOnce you have started the process... Read More

Secrets to Why Debt Reduction is So Vital for Your Financial Health

Living with debt is never a good idea if you... Read More

Selecting A Credit Counselor; Asking The Right Questions.

When you find yourself thinking about using a credit counseling... Read More

Credit Card Debt & the Unfairness of the Universal Default Clause

Let's look at a real world example: A woman purchased... Read More

Corporate Debt Management ? Perspective on the Why

Entrepreneurs have a tough time in their formative years. They... Read More

The Five Most Popular Questions About Bankruptcy

WILL MY CREDITORS STOP HARASSING ME?Yes, they will! By law,... Read More

New Bankruptcy Law ? Five Essential Things to Know

Last April, Congress passed the Bankruptcy Abuse and Consumer Protection... Read More

The First Step To Getting Out Of Debt: Make The Commitment!

These days, getting into debt is easy.Unfortunately, getting out of... Read More

Debt Relief -- Why Most Programs Have A 75% Failure Rate

Debt consolidation, equity loans, credit counseling, debt management plans, even... Read More

Debt Handling Solutions

Sometimes debt can seem overwhelming. In those instances, or even... Read More

Bankruptcy Interest Increases as Deadline Approaches

Congress recently passed sweeping legislation that will significantly reform American... Read More

The 5 Secrets to Getting Out of Debt Fast

As they stare down at a teetering pile of bills,... Read More

IVA Advice

An IVA (individual voluntary arrangement) is an alternative to bankruptcy... Read More

Learn How to Get out of Debt

Debt is becoming number one problem in the United States... Read More

Debt Consolidation Versus Debt Negotiation

Debt consolidation versus debt negotiation are two options that are... Read More

Debt Settlement -- Why the Critics Are Wrong

After October 17, 2005, a lot of people are going... Read More

Taking The Plunge Into Bankruptcy

Bankruptcy is one of the most difficult things a person... Read More

Save Money When Going Out

It seems as though whenever we go out for the... Read More

New Bankruptcy Law ? Targeting the Wrong People?

Last April, President Bush enthusiastically signed into law the oddly-named... Read More

New Bankruptcy Law Will Not Protect You from Identity Theft

Recently passed by Congress with overwhelming support, the oddly-named Bankruptcy... Read More

Debt Relief with this Simple Formula

Is there a way to get out of debt without... Read More

Bankruptcy - The Easy Option?

Incredibly, since the changes in the bankruptcy law in April... Read More

Bankruptcy - Is It The Right Choice For You?

Bankruptcy is one of the tougher choices we as adults... Read More

Can You Escape the Trap of Ever Growing Debt?

It's difficult not to be concerned when facing numbers like... Read More

Bankruptcy: Who is to Blame?

If you are considering bankruptcy as a solution to your... Read More

Pay Off Your Student Loans and Reduce Your Debts

Financing a college education is one of the more expensive... Read More

Debt Elimination 1

If you have multiple debts, you may well be wishing... Read More

Debt Validation: Do you have to pay ?

It happens all the time. Debt collectors try to collect... Read More

Should You Invest In Savings Or Payoff Your Debts?

I have faced this financial question 8 years ago and... Read More

Bad Credit Home Loan To Get You Out Of Debt

A "bad credit home loan" can help you climb your... Read More