Universal default is a now-banned practice in the United States financial services industry whereby a creditor would change the terms of a loan from the normal terms to the default terms (i.e. the terms and rates given to those who have missed payments on a loan) when that lender is informed that their customer has defaulted with another unrelated lender, even though the customer has not defaulted with the first lender.
Beginning with the deregulation of financial services in the mid-1990s, credit card companies began to include universal default language in their cardholder agreements. By the mid-2000s, approximately half of all US credit card-issuing banks had universal default language, albeit with most not enforcing them regularly or systematically.
By 2003, Congress began to consider bills to curb universal default and other abusive credit card practices. The Bush administration followed suit, with the Office of the Comptroller of the Currency issuing a stern advisory letter to the credit card industry regarding practices including universal default. In 2007, Citibank became the first bank to voluntarily eliminate its universal default provision.
In 2009, most forms of the practice were outlawed in the United States by the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009.
References
External links
- Frontline: Secret History of the Credit Card