There was a credit company practice that has been around for a while called ‘Universal Default’. Basically, what this means is that a creditor, usually a credit card company, could raise your credit rates if you were late on a credit account that THEY DID NOT OWN!
Let’s look at an example:
You have 2 credit cards, one for Bob’s Bif Burgers restaurant, and one for Jake’s Jiant Jambalaya (yes, I am hungry).
You have been making regular payments on both cards, but one month your Bob’s payment gets lost in the mail.
Jake checks your credit report, and sees that you made a payment late. So, Jake decides that your interest rate should be 29% instead of the 14% he had been charging you.
Universal default also covers making a late payment to a credit card company and having that company raise the rate.
For many cards that are considered ‘sub-prime’ (in other words they were easy to get), a single late payment would result in a rate increase after a very short grace period of a few days. They did this to protect themselves by taking in larger profits in case you were going to default on the card. However, what this really did was take someone who was in trouble and make matters worse for them. The net result was a much longer life on credit card debt.
The new bill stops that. Now, a debt has to be at least 60 days late before a company can raise your rates. This is a big boon to the consumer, and will cover simple mistakes. However, I would expect those rate increases to be bigger now, as the credit companies will be protecting against default more agressively.
Score on for the consumer, but this this is a big blow to reputable credit companies.
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I was affected by that law years ago. My rate went to about 30% on a card that I had always paid on time. Simple solution – I quit paying it at all. Lenders should always have realized that the borrower is in the driver’s seat once he has the money, but even now I am not sure they do.
It is good for consumers that this change came about, but it will also benefit lenders. When businesses realize that the customer always has a choice, they might be able to succeed.
I agree. The real problem for creditors is, when they drive a customer away, they are out a LOT of money. The cost of acquisition, combined with lost interest, can be a huge blow.
In my opinion, the biggest win is the credit companies not being able to charge outrageous fees. The way they have stacked the deck is amazing.
I am trying to get in front of my congressman to propose changes to the FDCPA. I think the consumer needs more rights, and the collectors fewer. I have a few ideas about how to put the burden of proof on the collector, especially for older debt.
When does (or did) this law end? I was aware of Universal Default, but didn’t realize it was ending. Yea!
Your site is bound to help lots of folks with their credit nightmares. I don’t use credit for anything! i pay cash or do without. Walmart Visa cards (debit) make it easy to pay bills and purchase online. I just purchased a new flat screen TV and a new dell Computer, paid cash and saved $1,500. in interest and loan fees! You would be amazed how well you can live WITHOUT CREDIT!
Oh please – credit card companies are run by banks – it’s banks that need to be held to task. Or closed. Consumers should not be held hostage to banks. This is a good step forward, but not likely to help the very people who really need the help.
I say we all go to credit unions and let the banks languish.
Yvonne, I agree with you. I do all my banking at Credit Unions now.
However, negating the fees that banks can charge will help consumers. The bank charges have a snowball effect. They let you go over your limit, and then charge you for going over your limit, and then raise your interest rate for incurring a charge!
Having this practice stopped does help the consumer. And, it will force the banks to become more picky about their customer base. If they don’t have a huge revenue stream, they can’t take as many risks.
There are many more changes I would like to see, but until those changes happen, this is a good first step.
It’s amazing how much fine print there is to deal with. Thanks for keeping us informed! Awareness is crucial to maintain control of one’s financial situation.
Great news! But I have to agree with Yvonne about the banks. Their fees are ridiculous and seem arbitrary. Thanks for this information.
this happened to me. no late payments in 20+ yeas. was late with one payment. And i sent it usual time but mail was late and FIA Credit services on another card, not the late one raised me from 11.9% to 29.9% across the other 2 cards i had. so any news on how i can lower that back down?
Good information, take note and get out of debt.
Barry