What is a Universal Default and What Does It Mean for Me?

16 Aug What is a Universal Default and What Does It Mean for Me?

A Universal Default is a provision in (typically) a credit card agreement that lets the credit card company increase your interest rate. It lets the credit card company look at your credit record and if you fall behind on any of your credit cards or other debt, it can jack up your interest rate to as much as 30% or higher, even if your payments to that credit card are on time. At the same time, they will often reduce your credit limit, making it almost certain that you will end up paying overlimit fees of $30-$50 per month.
Why do they do this?

The credit card companies say that if you are behind on one of your payments, it makes you a greater credit risk, and therefore it should be allowed to increase your interest rate to compensate it for and lower your credit limit to protect it from that additional risk. Of course, if your interest rate is doubled or tripled, you have additional fees, and your payments double or triple, a bad situation will just get worse, making it that much harder to ever catch up. And since the credit card companies receive billions of dollars in “default interest” rates, overlimit fees and the like, it looks as if they are just trying to squeeze a few more dollars out of someone who’s already teetering on the edge.

Is it legal? Unfortunately, at the current time it is. Congress has looked at passing legislation that would prohibit Universal Default,  but at the current time, nothing has passed.

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Brett Weiss, a senior partner at Chung & Press, LLC, represents people and businesses in all phases of bankruptcy. He has experience in complex individual Chapter 7, Chapter 11 and Chapter 13 bankruptcy cases, and in Chapter 11 small business restructuring and reorganization. Mr. Weiss lectures nationally on bankruptcy issues. He has testified before the Federal Bankruptcy Rules Committee, the Consumer Financial Protection Bureau, and has twice testified before Congress on bankruptcy and credit issues. Brett Weiss is the co-author of Chapter 11 for Individual Debtors, and has written Not Dead Yet: Bankruptcy After BAPCPA, for the Maryland Bar Journal, as well as hundreds of blogs for the Bankruptcy Law Network. With his law partner, he recorded a 13-hour basic bankruptcy training series, and leads intensive three-day Chapter 11 training boot camps. Mr. Weiss has received international media attention in connection with his work. He was interviewed by Barbara Walters on The View, has appeared on the Today Show, Good Morning America, ABC News with Peter Jennings, the Montel Williams Show, National Public Radio, AARP-TV, the BBC World Service, German state television, and numerous local radio and television programs, and been quoted in Money magazine, The Washington Post and The Baltimore Sun, among others. Brett Weiss is the Maryland State Chair for the National Association of Consumer Bankruptcy Attorneys, a founding member of the Bankruptcy Law Network, on the board of the Maryland State Bar Consumer Bankruptcy Council, and a member of the American Bankruptcy Institute, the Bankruptcy Bar Association of Maryland, and the Civil Justice Network. He has been recognized as a “Super Lawyer” every year since 2007 for Maryland and the District of Columbia, and in 2011 received the Distinguished Service Award from the National Association of Consumer Bankruptcy Attorneys for his work on behalf of consumers across the country. Mr. Weiss is admitted to practice before Maryland and District of Columbia federal and state courts, the United States Courts of Appeals for the DC, Fourth and Eighth Circuits, The United States Tax Court, and the Supreme Court of the United States, and has been practicing law since 1983.
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