What is a universal default clause?

A universal default clause is a provision that is included in many credit card agreements. This clause allows credit card companies to raise the interest rate on a borrower’s account if the borrower defaults on any debts, including debts not associated with the credit card company. This means that if the borrower has other debts, such as a loan or a mortgage, and they fail to make payments on those debts, their credit card company can raise their interest rate as a result. In California, the state legislature has passed laws that limit the ability of credit card companies to use this clause. Under California law, credit card companies must give borrowers reasonable notice before they can raise their interest rate due to a universal default clause. The notice must include information about the default and the company’s right to increase the interest rate. In addition, credit card companies cannot raise the interest rate retroactively. This means that they cannot raise the interest rate on purchases that have already been made, even if the borrower defaults on other debts. Overall, a universal default clause can be an effective way for credit card companies to manage risk and recoup losses from delinquent borrowers. However, in California, these clauses are strictly regulated to protect consumers from undue financial burden.

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