What Universal Default means to you as a credit consumer

The problem with this practice is not that it exists, the issue comes from lenders and credit card companies using it when they find out that you have defaulted with another lender, even though your payment record with them is spotless.

In the mid-1990s there was increasing deregulation of the credit card the industry and lenders didn’t hesitate to insert universal default language into the already hard to read and understand fine print of credit card agreements for new and existing credit consumers.

But starting in 2003, Congress has considered several bills to curb abusive credit card practices, including universal default provisions, in fact the Office of the Comptroller of Currency issued a stern advisory letter to the credit card industry regarding several of the most egregious practices its involved in.

Not surprising, the credit card companies have not responded to the letter because it would mean a loss of billions of dollars in free money at the expense of the end user.

But, recently Democratic Senator Carl Levin called five of the major credit card issuers to the mat on the universal default practice and in no uncertain terms posed an ultimatum - you change your behavior on your own or we will force you to.

Citigroup, America’s second-largest banking group by market worth - took the challenge seriously and became the first bank to voluntarily eliminate its universal default provision which went into effect immediately.

Bank of America, Discover Card and Capital One took a very different posture. Instead of acknowledging the practice which has caused hundreds of thousands of credit consumers to see high spikes in there minimum payments and deep dips in their credit scores because of this largely misunderstood practice - they instead attempted to defend the practice with flimsy explanations like,

“These policies are necessary so we as card issuers can adjust prices to offset the risk of card holders that might default on their debt”

This is hardly a sound argument especially coupled with the statement issued by the American Bankers Association that said since the credit card industry has become more competitive, many banks no longer charge annual fees on their cards.

If you’re scratching your head and wondering how that statement even remotely addressed the practice of universal default you’re not alone.

There are a lot of smoke and mirrors surrounding this practice because of the enormous amount of money that companies and those who support this practice stand to gain if they continue using it and lose if they are forced to stop.

A few weeks ago I had the opportunity to appear on The Morning Show with Mike &Juliet that airs on FOX nationwide - and speak out against this practice. You can watch a replay at http://www.Sanyika.tv

The bottom line is, if the idea of paying these legal loan sharking fees makes you mad, then you’ve got to put the pressure on your local and state officials to continuing pressing forward with legislation.

Your voice matters so much so that Senator and Presidential hopeful Barak Obama, is proposing a Bill of Rights that in his words would,

“Crack down on predatory credit card companies using deceptive practices to make big profits while driving families deeper into debt.”

The bill, which he pledged to implement if he becomes president, would prohibit banks from hiking interest rates without giving consumers the option to opt out of an existing contract.

Again the American Bankers Association chimed in, this time with a warning to Congress that new legislation could have -quote- “unintended negative consequences,” - end quote- and said it was a myth that Americans were drowning in credit card debts.

I have no idea where they get their information from, because according to Federal Reserve. US credit card debt soared to eight-hundred and seventy-seven billion dollars in 2006, that’s an increase of over one-hundred billion dollars from the 2003 consumer debt report.

What all of this means to you is an even deeper need to give yourself regular financial check-ups which include:

UNDERSTANDING HOW A CREDIT SCORE CALCULATED

The break down to make up one hundred percent of your credit score is:

Understanding this information will help you know how your credit habits could be negatively impacting your relationship with creditors overall

BEING AWARE OF WHAT YOU SHOULD DO WHEN YOU GET YOUR CREDIT CARD STATEMENT IN THE MAIL

I’ll be the first to admit that the amount of junk mail the average person gets is enough to wallpaper an entire house, but no matter how frustrated you are with that reality, it is necessary to thoroughly examine your credit card statement and fight the urge to throw it in the junk mail pile.

You have to open it and look for 3 things:

1. What is the current interest rate you’re being charged and is it the same as when you were first issued the card

2. Check to see if your last payment was properly applied - how much went to the principle when vs. fees

3. Pay attention to the due date because it could change and the statement will serve as your official due date for

TRIMMING THE CREDIT CARD FAT

Ideally, you don’t really need more than two credit cards and you most certainly don’t need all of the quote - “insurances - end quote that charge you a monthly fee in exchange for bill pay assistance and other services.

As a credit card consumer you have the ability and the right to be the David that brings this Goliath practice to its demise, but you must let your government representative know that you’re tired of being bullied and force them to go to bat for you and reverse this trend.