There was a credit company practice that has been around for a while called ‘Universal Default’. Basically, what this means is that a creditor, usually a credit card company, could raise your credit rates if you were late on a credit account that THEY DID NOT OWN!
Let’s look at an example:
You have 2 credit cards, one for Bob’s Bif Burgers restaurant, and one for Jake’s Jiant Jambalaya (yes, I am hungry).
You have been making regular payments on both cards, but one month your Bob’s payment gets lost in the mail.
Jake checks your credit report, and sees that you made a payment late. So, Jake decides that your interest rate should be 29% instead of the 14% he had been charging you.
Universal default also covers making a late payment to a credit card company and having that company raise the rate.
For many cards that are considered ‘sub-prime’ (in other words they were easy to get), a single late payment would result in a rate increase after a very short grace period of a few days. They did this to protect themselves by taking in larger profits in case you were going to default on the card. However, what this really did was take someone who was in trouble and make matters worse for them. The net result was a much longer life on credit card debt.
The new bill stops that. Now, a debt has to be at least 60 days late before a company can raise your rates. This is a big boon to the consumer, and will cover simple mistakes. However, I would expect those rate increases to be bigger now, as the credit companies will be protecting against default more agressively.
Score on for the consumer, but this this is a big blow to reputable credit companies.
