Let's look at a real world example: A woman purchased a new $4,000 large screen TV a few months ago based on the knowledge her monthly payment was going to be $175, and based on the 9% interest rate charged by her credit card company. For five months straight she made all her payments on time, but in the fifth month she was late paying her mortgage bill, for reasons unknown. She found out a month or two later that her credit card company doubled her interest rate to 18%, thus increasing the payment for the TV to about $190 per month. Even though she was never late on any other payments, she found most of her other credit cards raised their interest rates as well. Even her car insurance company raised their rates. The net effect was she ended up paying nearly $200 per month more because she was late on a single mortgage payment.
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This is a common result of a very little known or understood clause found in nearly every credit card agreement today. How would you feel if the company who sold you a product, based on certain arrangements (including the interest rate), called you up and said they were increasing your monthly payment for reasons that have absolutely nothing to do with them? Is this really fair?
Lehmans costs of borrowing rose and its share price fell. With an impending downgrade to its credit rating looming, legal restrictions were going to prevent certain firms from continuing to lend to Lehman. Othercounterparties that might have been able to lend, even if Lehmans credit rating was impaired, simply decided that the chance of default in the near future was too high, partly because they feared that future credit conditions would get even tighter and force Lehman and others to default at that time.
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Let's take this a step further. Could any customer call a company, that had sold them a particular product on payments, and tell them the re-payment to the company will now be lower because they had missed a payment to one of their suppliers? Of course not. This Universal Clause is extremely one- sided, making consumers victims of what one could easily ascertain as an unjust and unmerited practice.
Those that did not raise interest rates solely because of credit report data included American Express, Bank of America, California Bank & Trust, State Farm and BB&T, according to the survey. 402 Consumer Action, "2004 Credit Card Survey, " www. action. #Topic_01 The survey found that Capital One also did not practice universal default, Sherry said.
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Yet many powerful credit card companies continue to lobby Washington, arguing it is the consumer that needs to be held accountable to the terms and conditions of the contract, neglecting the most important element, that they are equally accountable to the same terms and conditions of the agreement. The Clause was introduced in the mid nineteen- nineties, after seeing an influx of bankruptcy filings in America. The credit card industry, fearing huge losses, decided to enact this little known clause referred to as "The Universal Default Clause". Simply stated, they feel the credit card companies should have the right to increase one's APR if a consumer is late on any other credit card or debt entity, including outside bills such as phone, cable or utilities. This clause is purely an excuse to collect more money for credit card companies who invoke the clause. Surprisingly enough it comes at a time when many cardholders need monthly relief, not additional financial strain. This clause creates a natural conflict between cardholders and credit card companies, and generates an adversarial relationship that leaves everyone bitter.
The right of the mortgagee (lender) to demand the immediate repayment of the mortgage loan balance upon the default of the mortgagor (borrower), Sale Clause.
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According to the Office of the Comptroller of the Currency (OCC) this is considered an unfair practice and has recently labeled it "Unacceptable". The Clause is usually hidden under the "Other APR's" section.
No waiver by either party of any default shall be deemed as a waiver of prior or subsequent default of the same of other provisions of this Agreement. 15. SEVERABILITY If any term, clause or provision hereof is held invalid or unenforceable by a court of competent jurisdiction, such invalidity shall not affect the validity or operation of any other term, clause or provision and such invalid term, clause or provision shall be deemed to be severed from the Agreement.
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My Advice: Please read each credit application carefully and avoid any card with this clause. Currently out of 45 banks issuing 144 cards, 44% use the Universal Default Clause.
Defaulting in payments, Bankruptcy, County Court Judgements (C.C.J's), Arrears, etc. The growing number of people falling prey to Bad credit loans has made it clear to lenders that they cannot do without doing business with defaulters. It is also illogical to penalize people for defaulting due to unavoidable circumstances. Besides, there are few means to guarantee that people otherwise rated with perfect credit, will not default on the loan. Since lenders have started accepting this fact, they have opened up new avenues specially catering to those with bad credit like bad credit personal loans, bad credit car loans, bad credit debt consolidation, etc.
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Phil Andrews is currently the VP of Business Development for Precept Financial Solutions, a leading debt settlement firm based in Dallas, Texas. For more information, go to http://www.PreceptFinancial.com or call toll free 800-584-0855 and press option 2.
Free Credit Rating Report Phil Andrews is currently the VP of Business Development for Precept Financial Solutions, a leading debt settlement firm based in Dallas, Texas. For more information, go to http://www.PreceptFinancial.com or call toll free 800-584-0855 and press option 2.
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