What is a universal default clause?

A universal default clause is a provision in a credit card law found in Washington that gives a lender the right to increase the interest rate of a cardholder’s account if the cardholder defaults on payments with any other creditor. This means that if an individual is late on payments with any creditor—not just the one they have a credit card with—the lender can raise their interest rate to a much higher amount. This increases the amount of money they must pay back, and can make credit card debt much more difficult to pay off. Furthermore, universal default clauses can be particularly costly as the lender can raise interest rates even if the cardholder isn’t carrying a balance, which means that even regular payments made on time can be subject to a higher rate. Since the introduction of universal default clauses, Washington has taken several steps to regulate their use and protect consumers. Most notably, creditors are now required to notify consumers before increasing their interest rate as a result of a universal default clause, and give them a chance to address the issue. Additionally, the law prohibits lenders from applying a universal default clause to any credit card agreements signed before a certain date. These protections are critical for protecting the rights of cardholders in Washington and ensuring that lenders cannot take advantage of them.

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What is a universal default clause?

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