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Chase to Stop Raising Rates Based On Credit Reports

'Clear and simple' program debuts next year

by Martin H. Bosworth
ConsumerAffairs.com

November 20, 2007

Well, good news.

Chase Card services says it will end the practice of raising customers' interest rates based on credit report information, beginning in March 2008.

Chase Card Services CEO Gordon Smith announced the change as part of Chase's "Clear And Simple" plan, designed to "build lasting, loyal relationships between ourselves and our customers."

The practice of using missed bill payments as an excuse to trigger interest rate hikes -- commonly referred to as "universal default" -- is widespread throughout the credit industry.

Consumer advocates have long criticized the practice as unfair, noting that missing a single bill payment does not immediately indicate financial irresponsibility, and that positive bill-paying records were not used to raise a customer's credit score.

Although Chase ended its usage of universal default in 2005, it continued to monitor credit reports and scores for excuses to raise interest rates. Under the new system, a Chase customer will only get hit with a rate hike if they make late payments, go over their balance limit, or bounce payments.

Curtis Arnold, founder of credit card comparison site Cardratings.com, called the change "a major step forward for consumers." "I commend Chase for being serious about making their cards more consumer friendly," wrote Arnold on the CreditBloggers personal finance blog.

Chase's move follows a similar action by Citigroup, which announced in March that it was ending its practice of "universal default" and "any-time-for-any-reason" rate increases.

The industry's sudden consumer-friendliness is widely perceived as an effort to fight off further regulation by Congress. The Senate held hearings on abusive credit card practices in March 2007 and threatened to more closely scrutinize lenders.

Two Senators introduced legislation in May that would prohibit punitive fees levied on cardholders and restrict charging of interest on fees for certain transactions.

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