What is a universal default clause?
A universal default clause (UDC) is a clause that is included in a credit card contract between the card issuer and the cardholder. This clause gives the credit card issuer the right to raise the interest rate on the credit card in response to certain changes in the credit card holder’s financial situation. The UDC applies to any and all financial situations or changes, rather than just those applied to the specific credit card. In Wisconsin, the UDC was commonly seen in the credit card industry. It allowed the credit card issuer to increase the interest rate if the customer defaulted on any other loan, missed any payments, or had any late payments on their credit card statement. This could result in a customer paying much more interest on their credit card balance than they initially agreed to. In 2009, Wisconsin passed legislation prohibiting the use of UDCs. This law aimed to protect Wisconsin consumers from having their interest rates increased even after meeting their credit card payments. After the 2009 law was passed, Wisconsin credit card issuers were no longer allowed to include UDCs in credit card contracts.
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