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Background info on universal default clauses, insurance and banking practices
 Moderated by: Christine
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 Posted: Fri Jan 19th, 2007 08:05 pm
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Joined: Thu Nov 30th, 2006
Location: The High Desert, Arizona USA
Posts: 45

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I recently considered applying for the Home Depot Project credit line issued by Citi Bank.   It clearly states on the application that they may increase the interest rate due to balances on other accounts, inquiries, etc.  

The banks try to protect themselves from lawsuits by disclosing that none of their offered terms are binding and that all terms are subject to change for any reason.

Last July I started shopping for home owners insurance for my new place and the quotes went from about $400 to $550 in December from the same company - because my credit score dropped from 750+ to the low 600s due to the high balances on my credit cards, used to build the house.

I don't have a single late payment or any kind of reporting TRADITIONALLY considered as negative.

Back in 2003 we discussed at my CreditForum how the lower scores caused by a home equity loan (HELOC) resulted in the PEMCO premium increase.

This has since been litigated and I believe the 9th Circuit of Appeals Court (California) ruled that insurers can use credit scrores to rate policies.

Obviously, the laws need to change. 

The "universal default" clause has been hotly debated, but I don't know whether impending legislation caused some creditors to back away from it.  Essentially, it means that if your credit report shows a late payment on another account, they can increase your "fixed" rate on credit cards or close the account.

I haven't heard any discussion of rate increases or other changes in terms due to balances on other cards and it's about time that's addressed.

Barclays Bank actually CLOSED my Juniper credit card without any prior notice due to the balances on my other accounts.

Consumers need to be able to count on their credit lines and terms.

I was actually ready to pay off the Juniper account just as I received their notice that they closed my account.  Had I done so, I would not have been able to pay my contractors and material, I would have been short over $4,400 as I wasn't able to use the card as planned.

Consumers are FORCED into default and often even have to file for bankruptcy. 

I've had many clients with bankruptcies who had no late payments, but due to the creditors raising rates, they could no longer make the payments.

Consumers have a good plan and budget, they PAY all their bills ON TIME, yet the creditors all of sudden raise rates, lower limits or close accounts.

It's about time we get a new law PROHIBITING the change of terms for credit cards and credit lines unless a consumer is more than twice late with a payment on that account in any 12 months period.

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