Earlier this month, Citi got rid of the Universal Default clause in its user agreements meaning they can’t raise your interest rate if you miss or are late on payments to other creditors. I can understand how universal default was a safety measure for credit cards because of how low the minimum payments are compared to other expenses (such as a monthly electricity or water bill) but this clause screamed of abuse. The idea behind interest rates are that the higher the rate, the riskier the debt because there is a possibility of default. To combat default, creditors must take in more interest in order to offset any potential losses.

The universal default clause protects a creditor because they can detect a potential problem with a debt much earlier and make moves to counteract it by raising interest rates. This, of course, means that someone who borrowed at one interest rate can potentially get hosed when the lender increases the rate for any reason (which they are allowed to do, you know this before you get a loan). Either way, I think the universal default was probably abused because there’s no reason for a credit card company to “feel bad” for you. They are in the business of making money and making money off you and the stores you shop at, but it is nice to see when a big card issuer takes one of their weapons off the table in response to consumer pressure.