Citi to stop practice of universal default on 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 website 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.
- 7 easy ways to protect your credit while holiday shopping – Fraudsters may be more likely to strike during the holiday season when consumer spending is high, so vigilance is especially important from November to January. ...
- Consumer protection chief resigns, Trump to pick successor – Richard Cordray, founding director of the Consumer Financial Protection Bureau, just announced his departure; will be replaced by President Trump ...
- CFPB sues country's largest debt settlement company – Federal consumer watchdog accuses Freedom Debt Relief of misleading customers, collecting unearned fees ...