Universal default hits my friend
I have a friend who just got hit by the credit card fee-generator called ‘Universal Default.’ In case you’re not familiar with the term, universal default is when a credit card company increases your interest rate when another, unrelated debt goes into default. Say what you want about bank credit card divisions, they’re great at generating fees. In this case, bizarrely, the bank is making you pay more to them because you owe someone else money.
According to R.K. Hammer, a bank advisory firm, banks collected a record $17.1B from fees. While what happened to my friend isn’t, strictly speaking, a fee, it is one of the reasons bank profits are in the stratosphere. These fees are making up an increasing large portion of bank profits, too. Fees made accounted for $55.2B of bank industry income in 2006. That number is pure profit, folks.
So what did my friend do? Taking a tip from just about every consumer-oriented blog, he called Discover (the institution that increased his interest rate) and asked them to lower the rate back down. Interestingly, they refused and he then paid the account off and closed it. Probably not a smart move on Discover’s part since my friend obviously carried a balance and as a result represented a steady income stream for them.
