Citi to stop practice of universal default on credit cards
By Jeremy Simon
On March 1, 2007, Citi announced plans to stop the practice of universal default, as well as "any time for any reason" interest rate and fee hikes on its Citi-branded credit cards.
Under universal default, banks can raise the interest rates on their credit card when the cardholder is late on a payment to another company, or has in some way negatively impacted their own credit score. Both Democrats and consumer groups have targeted the practice of universal default, labeling it deceptive and unfair.
Citi said it will not "voluntarily" raise the rates and fees on credit card accounts until the credit card expires and a new card is issued. Citi explained that the only reason for a rate or fee increase prior to card expiration would be due a customer's late payment, exceeding the credit limit, or payment by a check that bounces.
Additionally, for a credit card APR linked to the prime rate, Citi indicated that the rate would only change based on upward or downward movement of the prime rate.
Earlier, a memo from Citi on the American Banker's Web site outlined the credit card issuer's plans.
Citi's memo explained that, while "[t]his has been a standard business practice across the industry since the inception of the credit card business...we understand that customers view the right to change prices as unfair and one-sided."
Ahead of the memo, on Feb. 28, 2007, Senate Banking Committee Chairman Christopher Dodd had announced that a major credit card company was close to publicizing a decision about ending a certain practice. However, at that time, Dodd did not provide additional details.
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