Credit card companies think up lots of strategies to get the unsuspecting consumer to spend more money, to carry balances, or to allow the companies to raise interest rates. One of the most unfair tricks in recent memory is the Universal Default Clause. In many of the little booklets sent out to credit card holders, printed in microscopic legalese, are explanations about this insidious trick to squeeze more money out of their customers.

Don’t Forget the Fine Print

Most consumers, myself included, surf through these small dictionaries without reading all the party-of-the-first-parts and other legal prose, only to get caught later by a clause that I either didn’t understand or didn’t fully read. This is exactly what the credit card companies are hoping happens.

Universal Default Clauses started appearing a couple of years ago, as companies’ competition for customers increased. Profit margins were dropping slightly, so this clause was ’slipped in’ to new/existing cards by some of the ‘less than stellar’ credit card companies. The Universal Default Clause stipulates that; if the customer is late on a payment to a credit card, the card moves to the default interest rate (sometimes as high as 32%!!). Now here’s the kicker; The late payment doesn’t even have to be to the card same card!

Let Me illustrate

Happy consumer (let’s call him Dopey), pays all the minimums on his bills regularly. He has a couple of credit cards, let’s call them Masterful and Visss. One month, he comes up short, so he pays Masterful in full, but misses the payment to Visss (remember, he’s never missed a payment to Masterful before). Unbeknown to Dopey, in the little "how-to-screw-the-consumer" disclosure booklet he was sent last month by the Masterful credit card company, on page 36, at the bottom in 6 point print is the new Universal Default Clause that the company has just added to the account.

Next month, Dopey gets the statement from Masterful, only to find that his annual percentage rate is now 32% and his minimum payment has gone up because of all the extra interest he’s having to pay. He always paid on time, but he was penalized because he missed a payment on a Competitor’s card. Calling the Masterful representative will generally either get him no sympathy, or if he’s lucky, a "We’ll return your interest rate to it’s previous level if you pay consistently for six months in a row". Either way, he’s locked into paying an exorbitant interest rate for at least half a year.

Customer Disservice

To my knowledge, this is one of the most blatant ways that companies say "I don’t value your good business". If I were in a financial hardship and still chose to pay one company over another, I would naturally assume the company not paid would penalize me. I would be completely surprised to find out the company I did favor, penalized me for missing another payment.

In my book, any credit card I own that implements a Universal Default Clause, qualifies the credit card for the shredding pile. With competition between card companies the way it is, it’s easy to move to another card without this horrible clause.