Timely Warning - Credit Cards & Universal Default

This post is inspired by a short article on Rense (don't groan). It was about Universal Default and Credit Cards. Not knowing what it was, I decided to do some investigating, I was shocked. In these precarious financial times it is prudent to be aware of this concept called Universal Default - your financial survival may depend on it.

How many people read the fine print on the credit card contract? If you did/do you may find this clause. There is also NO LIMIT on the credit rate that a company can charge.

Even if you make your credit card payments on time, the credit card bank can raise your interest rate automatically if you're late on payments elsewhere -- such as on another credit card or on a phone, car, or house payment -- or simply because the bank feels you have taken on too much debt.

This practice is called the "universal default" clause and increasingly is becoming a standard clause in credit card agreements. According to credit card executives, the logic behind universal default is that the bank is not being unreasonable in raising rates when it has reason to believe that the risk of being repaid by the customer has increased.

Credit card banks can easily track your financial activities.

If you've ever looked at the return address on your statement, you may notice your credit card issuer is located in a state such as South Dakota or Delaware. That's because these are the states that have either weak or no "usury laws" meaning there is no cap on the interest rate that is charged. (View this map that shows the states where the top ten credit card issuers are located.) The federal government once had national usury laws that set a cap on the amount of interest that could be charged on a loan. But after the Great Depression, it repealed them and some states put no new usury laws in place. That's why Citibank, the issuer of Mastercard, moved to South Dakota, which has no cap on interest rates. (For more on the South Dakota story and how the credit card industry took off in the 1980s, read The Ascendancy of the Credit Card Industry.)

This is very disturbing. For more reading visit the www.pbs.org...

This is information everyone needs to know.


Here are just some of the reasons that this can be charged:
The customer behaviors that can potentially trigger universal default pricing by a credit card issuer include the following:


Being late (even once) on a credit card, mortgage, utility or car payment
Going over the credit limit on any credit card
Carrying too much debt overall
Using over 50% of the credit line for an individual credit card
Having too much available credit and open trade lines
Making too many credit inquiries
Getting a new mortgage or car loan

Source

My personal favourite out of all the reading is this little gem:

Universal default is not meant to hurt consumers. Rather, it is intended to protect credit card companies from potential losses by charging higher interest to those customers with degrading risk profiles. It is somewhat analogous to a health insurance company charging higher insurance premiums to someone who smokes, even though they haven't filed a claim

(edited for more information)

[edit on 31-3-2007 by deessell]

[edit on 31-3-2007 by deessell]

...continued.


This is the kind of language you should be looking for in your contract.

We may change the rates, fees, and terms of your account at any time for any reason. These reasons may be based on information in your credit report, such as your failure to make payments to another creditor when due, amounts owed, or the number of credit inquiries. . .

Source

Extremely broad - beware!

[edit on 31-3-2007 by deessell]

Rates don't matter to me, because I pay off my credit card bill in full every month. Usually I write the cheque as soon as I open the letter.

I only have a credit card right now to establish a credit record for when I inevitably need a mortgage (Which I will put down at least a 25% deposit on when I get one). I hate being in debt, and I will never use my credit card if I don't simultaniously have the same amount of money in the bank to pay the bill.

In fact I think that it's a good idea what they are doing. If you have massive amounts of debt, like thousands of dollars, there is a good chance that you will never pay it. Charging higher interest rates on people massively in debt will help them finance a collection agency to go after the lowlifes once they stop paying entirely. If someone goes bankrupt, they get nothing. So they might as well milk it out of you while you're still paying.

It's not like they will raise the rate 1000%. I don't see what you're so worried about. I would be more concerned in signing up for any form of credit with rates between 17%-30% as most credit cards are to begin with. If you're going to be borrowing that much money, get a line of credit at a considerably lower rate.

They are in a high-risk business and they're just covering their asses. In a perfect world, businesses wouldn't need things like "Allowance for doubtful accounts" in their books, but they do. If you don't like it, stop using credit cards, cut them up, and pay everything in cash.

If the article applies to you, you are probably misusing it and financing stuff with your credit card that you will never be able to pay off in the first place. By the time you are done paying interest on the original purchases, you probably could have bought them two or three times over.

It's funny how the people driving the hummers, watching 60 inch TVs, and taking exotic trips every year that appear to be rich are all massively in debt, and all the humble-seeming people are the "millionares next-door".

It's all about materialism. You don't need all that stuff. So stop trying to get it when you can't afford it in the first place.

[/rant]

[edit on 3-4-2007 by Yarcofin]

Originally posted by Yarcofin
Rates don't matter to me, because I pay off my credit card bill in full every month. Usually I write the cheque as soon as I open the letter.


[/rant]

[edit on 3-4-2007 by Yarcofin]

You may be sensible about credit but there are many people who are not. That was the reason for me posting this. Even if only person read my post and learned something about this matter then I am happy.

Actually, I don't have any credit cards.

It can be a nightmare if you do not be careful with credit cards.
My wife got one in college and it started out at a $1000 limit.
She paid it off on time every month and they kept on raising her limit.
soon she was up to $10,000 still never late on a payment.We married and I quickly jumped on this company's ass to reduce the interest rate from a whopping 21% to something reasonable. They refused to even consider this!
I couldn't believe it, she had NEVER made a late payment and now we were paying around $250 a month just for interest and fees. It was not even going toward the principle! We could not afford to make $250 payments toward nothing anymore. I pleaded with them and they refused to budge. I explained to the CC company that I wanted to pay the stupid credit card off but the APR was so high that I could barley afford to pay it alone. Then I decided I was not going to allow them to rape my family anymore and stopped paying. Then came the nasty calls over and over again like wild animals insulting me and threatening me. I told them lower the interest rate and let me make payments where at least some $ would go toward the actual debt. They said no and I told them to get fuc*ed. Followed by a cease and desist letter to the company to not contact me anymore.
5 months later they call me with a $1400 settlement and naturally I agree .
What I do not understand is why in the hell did they just not lower the APR and give me the chance to pay the debt off in full instead of cutting their own throats and settling for $1400 instead of the $10,000??

I will never have another credit card as long as I live. A debit card is all I need.
The funny thing is the more debt you have the higher the fees and interest rates go.Its almost like the see you down on the floor and they start kicking you repeatedly.

[edit on 3-4-2007 by Digital_Reality]

Also after accepting the settlement and paying early payments to get it over with. I found out they are hitting our credit with late payments from the previous balance I owed them.Even tho I'm making my settlement payments on time. I called them and they said they would continue to report late payments to our credit until the settlement is paid due to the old payments not being paid. Another nice little bonus is that I also received a letter informing me that I would be responsible for paying the taxes on the difference from settlement.

I'm not upset about having to pay a debt . I'm upset about the system that allows these company's to rip your soul out.

If you don't want your credit limit raised, you can call the credit card company and tell them to lower it back down. All the companies that I've heard of will do it. If they don't, leave and find a new one. Moreso than getting into debt, it can be an issue in case of credit card fraud.

There are also many credit cards out there that don't have any kind of annual fee. You only pay if you have a balance at the end of the month. If you are paying a fee of any kind (unless you are paying for extra options), I'd switch too.

The best person with information on credit and finances, I think, is Suzy Orman. I would recommend watching her show, whether you are in debt or not. It could save you thousands of $$$.

More staggering information about Consumer Debt in the United States.

Consumer Debt exceeds the National Debt.


There are more than one billion credit cards in circulation today in the United States, including 600 million retail cards, 320 million bank cards, 140 million oil cards, and 30 million travel and entertainment cards.
The typical family spends more than 90 percent of its disposable income servicing debt.

Three out of five U.S. households have an average credit card balance of more than $11,000. Paying only minimum payments at 24 percent interest, it would take 22 years to pay it off—and you would pay over $47,000 in interest.

Average credit card debt among all American households is $8,400.
1.6 million U.S. households—one of every 73 — filed for bankruptcy in 2003.

Roughly 24 percent of personal expenditures in this country are made with credit and debit cards.

Average per household debt in the U.S., not counting mortgage debt, is about $14,500 — especially noteworthy because, before the 1930s, most middle and working class people had no major debts. Banks would not lend to them; they rented their homes and if they did own a house, it was paid for as it was being built.

A typical credit card purchase ends up costing 112 percent more than if cash were used.

A $1,000 charge on an average credit card will take almost 22 years to pay, and will cost more than $2,300 in interest ($3,300 total) — if only 2 percent minimum payments are made.

40 percent of American families annually spend more than they earn.

About 60 percent of active credit card accounts are not paid off monthly.
Average card debt among people who have at least one card is $9,205 — triple what it was in 1990. A typical American family today pays about $1,200 annually in credit card interest.

The average interest rate on credit cards is 18.9 percent.
In 2002, the credit card industry took in $43 billion in card fees. The personal savings rate in the United States has dropped from 8 percent in the 1980s to less than 2 percent since 2000.

This and more is available for reading in the original article which can be found at

www.proliberty.com...




[edit on 8-4-2007 by deessell]

Yet again I feel the need to bump this thread.
Hang on there people, we're in for a rough ride.

Good Luck

Originally posted by deessell

Here are just some of the reasons that this can be charged:
The customer behaviors that can potentially trigger universal default pricing by a credit card issuer include the following:


Being late (even once) on a credit card, mortgage, utility or car payment
Going over the credit limit on any credit card
Carrying too much debt overall
Using over 50% of the credit line for an individual credit card
Having too much available credit and open trade lines
Making too many credit inquiries
Getting a new mortgage or car loan

You all seem to be working in $, and im not sure what the laws are like in the UK where i am but i will have a stab at this anyway.

I own 1 credit card, the company would like to charge me 30% interest which is fair enough i suppose as i had no credit history up until now.

My limit is about 2 weeks wages and thats where ive told them to keep it, i use it only as a means to get some sort of credit history and nothing more.

I realise not everyone can live this way, i know im lucky and have huge sympathy for people who really do struggle to live day to day and have credit because they have no other way.

However when people have credit cards with ballances well above what they can afford to pay through sheer greed or whatever other reason they come up with for having their credit cards maxed, that ballance should never go away not till every penny is all paid off.

--

Reminds me of a time i was stood behind a woman in the petrol station. After tryingh atleast 5 different credit cards and being told none of them could pay for her petrol (i presume because they were all maxed out) she reluctantly paid in cash... She was not happy about having to pay with paper at all, it was like the assistant was insulting her family when she was asked if she could pay cash.

Most of the time i prefere to pay cash because it feels like your spending money not just watching numbers get ever smaller.

Well I think I can chime in here:

I am a bill collector for chase bank, I deal with retail credit cards with balances of $25,000 and higher. Universal Default ruins peoples lives, end of story. On one of the cards I collect on people will be paying say around $600/mo on their balance, universal default kicks in and now they are paying $1000/mo, this is just an example. I deal with this every single day. I don't feel bad for some of these people, they truly are scumbags, but some I do feel bad for. Someone who has always paid their bills and gets ill and loses a job, is someone I have compassion for. A person who tells me to do what I have to do that owes $40,000 and lives in a $1m house and drives 2 benz's does not get my compassion.

Everybody in america lives outside their means, some just wander too far off. Thats why its a simple concept people, if you can't afford it in cash, don't buy it on credit. Credit cards arent for emergencies either, thats what an emergency savings account is for, you know the 10% your supposed to save from every paycheck you receive. People in general have no concept of personal finance, we live in a world of if I want it I'll buy it, no matter how I have to get it done. It's sad really, I'm 25 years old and know more about personal finance that 85% of americans.

I'd love to see collection agencies go out of business, but until consumers start reading the fine print, start learning about personal finance, and start living within the means their income provides, we have ZERO hope. Unless we abolish federal income tax. Then we won't need to use credit to buy the things we cannot afford.

BluByWho,

Dave Ramsey, nationally syndicated financial counselor radio talk show host, has been looking for credit collectors who see and understand the deception and manipulation that goes on in the collection industry. He is wanting to interview collectors anonymously who have seen illegal practices, those in violation of the Fair Debt Collection Practices Act, and disapprove. Being a collector for Chase, I suspect you have had ample witness of such acts.

www.daveramsey.com if interested.

I've never had a credit card and I never will, maybe that will bite me in the behind one day but I don't like to gamble. These credit companies are nothing more than financial parasites that create profit without any real product. The whole credit industry has gotten all of us Americans in some deep trouble.

Granted, I see many people living far far outside their means and if they buy a Escalade and have no intention of paying it off then it's their own fault. However, some people fall on hard times. There are many cases where someone is able to be responsible with their lines of credit, loans and mortgages but then lose their job or encounter unforeseen medical problems. As soon as this happens the creditors with increase interest rates to the point that the borrower can't pay off the loan but is only paying interest.

This is because the creditors see weakness, the realize they may not get their money back and there for will try and bleed the borrower of whatever they can. Remember, interest equals profit for the creditor and profit is what they're after. They increase the interest rates to ensure they get maximum profit while not allowing you to pay off the initial debt.

Don't even get me started on the way these collectors treat people. It's criminal, it's usury, it's parasitic and there needs to be national usury laws.

Don't even get me started on the way these collectors treat people. It's criminal, it's usury, it's parasitic and there needs to be national usury laws.

Not all of them are bad, I do it by the book. I don't break the law in any aspect of the business, hell I never even raise my voice on the phone. There are definitly some that do break the law, but you need to see the business from our side before you draw all conclusions. You would be amazed to see how I get treated on the phone on a daily basis and the things some of these people say. When you owe $25,000+ on a credit card and haven't paid a dime in 8 months, do you expect the person calling you to be nice and friendly? Once you eneter collections, you are no longer a customer.

[edit on 20-8-2007 by BluByWho]

bluby: a few years ago my (now)wife and i moved across the country because i had a better job lined up. when i got there it feel through and i had to take any work i could get. we were broke and had debt that previously we were able to handle and suddenly we could barely make minimum payments if any. we decided to try one of those credit counseling places where they take $$$ and pay it out to your creditors for you after they negotiate some sort of deal. i had creditors calling me demanding money and telling me that i shouldn't have done that and that they're just going to make it worse. then i had this credit place that kept telling me to hang in there. eventually i said f'it and decided to trust neither of them and filed bankruptcy.

i made honest attempts to work out deals with my creditors but they were so inflexible that a bk was my only option. i got a settlement letter from one place and they wouldn't respond to the voicemails i had to leave so that i could get it paid. another was charging me 29% interest and the best they could do was lower it temporarily (3 months i think). i actually think this one is no longer around or has changed names. i realize creditors need to be strict if they want to get money back at all, but i do think that had i been given a CHANCE to pay it off, they would have gotten their money.

now i have a good job again and i feel like everything is back to normal. we still have a few years until our credit is back in order though. anyway, i was wondering what you thought about those credit counseling places. also, i just wanted to say thanks for not being one of the jerkwad types.

an0maly33:

The two types of companies out now taking advantage of consumers like credit card companies are Consumer Credit Counseling Services (CCCS) and Debt Settlement companies.

Avoid CCCS at all costs. They on average keep 12% of every dollar you save with them. They will get you really low payment plans with some of your creditors, however they almost always neglect some of your creditors. Meaning you move on further through the collections process, while all along you are thinking your doing the right thing. Once your accounts fall into collections your balances become due in full, these CCCS companies cannot help you out once your in collections. Depending on the original creditor, they may garnish your wages, attatch a lein to your assets, file a judgement against you etc etc.

Settlement companies are a rip off also, when you open an account with them they pay themselves first. You may be saving $500 to an account with them on a monthly basis but you wont see any of that money for the first 6-8 months, they keep it for their service charges. Not only that but they charge you to perform a service you can do for free. If you have an account in collections you can settle the debt on your own. Offer them 25% to begin with, stick to your guns, and dont pay more than 60%. All collection places will settle.

to be more accurate i believe it was a debt settlement company i was working with. basically they would have me put a few hundred dollars a month into a savings account and they would decide how to distribute it. luckily i didn't get too far in before realizing something was wrong and only lost about $150. i was able to get most of my money back out of the account. by then it was too late to work anything out with the creditors that didn't hate me yet, so we did the BK. thanks for your reply - hopefully others will see what you had to say and maybe it will help them.

My credit is in good shape, really good shape.

I found out the hard way that what is on your credit report reflects your interest rate.
My bank sent me a letter they were raising my interest rate.
When I called they informed me I had a delinquent account
Now, I ALWAYS pay my bills on time. So, I called the Credit Bureau, I forgot which one and low and behold, there was a deliquent phone bill on there, for an alleged address 20 miles from my home.

Someone got a hold of my social and used it to obtain a telelphone, ran up hundreds in calls and booked. Leaing *me* with the bill.

I eventually cleared it up, restored my interst rate, removed the bad grade on my credit and put a Fraud Alert on all three Credit Reporting Agencies.
So, if you do notice a rate increase, it will serve you well to investigatea the cause, esp. if you don't make late payments.

That's how most people find out they're a victim of identity theft.

It's a good idea to invest in identity theft insurance. It's cheap, offers the same services as normal credit monitoring services, but with the added benefit of taking care of any problems that do arise from your identity being stolen. The better companies out there will assign someone to your case once a theft has been discovered, and will deal with the reporting agencies and creditors involved so you don't have to.