Credit card debt is a problem in America. Why? Really there are a host of reasons and certainly some of the responsibility falls on the shoulders of those who spend money they don’t have on things they don’t need. Having said that, I believe the heart of the problem is the usurious interest rates that credit card companies get away with charging “customers.” In what universe is 30% interest acceptable? Bad News: the credit card folks are getting more and more creative at soaking consumers.

Provisions that call for excessive interest rates are usually hidden in fine print and in an alarming trend, are being implemented after events of default completely unrelated to the borrower’s credit card account. I’m a free market guy, if you knowingly make a deal, you knowingly make a deal. The American public is smart, however, credit card contracts are designed to deceive. For example, every consumer who uses a credit card should be aware of what is known as a “universal default.” It is quite common for credit card issuers to tie an increase in interest rate to a borrower’s default on an unrelated account or because of a slight drop in credit score. Under these provisions, a borrower who is one day late on any payment to any creditor (such as a phone bill), could be subject to a default rate as high as  30% on their credit card. Some credit card companies review your credit report monthly, some quarterly and some yearly and some never do. It is not uncommon for a universal default provision to be tied to a drop in credit score regardless of whether the dimunition is attributable to borrower behavior.

It is vitally important that consumers research thoroughly their credit card agreements so as not to expose themselves to universal default provisions. The universal default is particularly popular in “zero APR” contracts where borrowers often transfer balances to try to pay down debt. If your credit card debt is jeapordizing your ability to pay the mortgage or other necessary living expenses or if you routinely utilize credit to pay for groceries and the like, you may want to discuss the possibility of bankruptcy with an attorney.

John O’Connor