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.
- Powell: Fed remains patient in setting rates – The Federal Reserve will remain patient in assessing the need for rate hikes this year, according to Fed Chairman Jerome Powell ...
- Credit freezes are now free ? but do you need one? – Credit freezes, which keep lenders and other companies from viewing your credit, are now free. We compared them to other credit protection tools, including locks and monitoring services. Here's how to use them all to protect yourself ...
- Employer credit checks: Who does them, how they work and what laws apply – If you're applying for a new job, a credit check could determine your fate, depending on the position and where it's based. Here's how they work and what to expect ...