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Universal default is a policy where credit card companies can raise an interest rate if a card holder pays a bill late even if it is not related to that particular credit card. For example, if a card holder paid their mortgage or utility bill late or even another credit card, their interest rate can be raised to the highest level under these terms. According to the advocacy group Consumer Action, about 45% of credit card issuers had universal-default policies in early 2005.
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While universal default was gaining popularity with credit card issuers, a few are beginning to backtrack on the policy. According to a story in <a href="http://www.usatoday.com/money/perfi/credit/2005-10-19-credit-cards-usat_x.htm">USA Today</a>:
<blockquote><i>Citibank now lets customers opt out of the rate increase and use the card on its old terms until the expiration date. Chase no longer raises rates if card holders pay late on another bill but could still do so if credit scores drop. Discover has removed the language from its card holder agreements, and American Express, after testing the policy on a small group of consumers last year, decided not to move forward.</i></blockquote>
While this is a good sign for consumers, credit card companies are still receiving record amounts of money due to penalty fees assessed on credit cards.
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While universal default was gaining popularity with credit card issuers, a few are beginning to backtrack on the policy. According to a story in <a href="http://www.usatoday.com/money/perfi/credit/2005-10-19-credit-cards-usat_x.htm">USA Today</a>:
<blockquote><i>Citibank now lets customers opt out of the rate increase and use the card on its old terms until the expiration date. Chase no longer raises rates if card holders pay late on another bill but could still do so if credit scores drop. Discover has removed the language from its card holder agreements, and American Express, after testing the policy on a small group of consumers last year, decided not to move forward.</i></blockquote>
While this is a good sign for consumers, credit card companies are still receiving record amounts of money due to penalty fees assessed on credit cards.