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Almost half of credit-card issuing banks surveyed by a San Francisco-based consumer group have universal default policies, which can lead to higher rates for cardholders who miss payments unrelated to the bank's credit card.

Citibank, Providian and Bank of America tied for the second highest default rate of 29.99 percent, according to the survey released today by Consumer Action.

Merrick Bank used the highest default rate -- 35 percent.

Jack Carsky, senior vice president for investor relations at San Francisco-based Providian Financial Corp., defended the practice.

"If people default on a payment or go delinquent on a credit card or on another bank's credit card, obviously the risk profile has increased. We look at it on an individual basis," he said.

"We do not use universal default," Bank of America spokeswoman Betty Riess said. Instead, the bank uses a "penalty rate, which is based on customers' behavior with their Bank of America credit card." The penalty rate is variable but can get as high as 29.99 percent, she said.

Janice Tarter, a spokeswoman for the credit card division of Citibank, said it recently changed its practice to provide consumers with a way to opt out from the higher rate.

"Before we increase the rate, we give the prior notice and explain why. We give the customer to right to opt out of the increase," she said.

Those who do so can continue to use their Citibank-issued credit card with the old interest rate until it expires, she said.

Both Citibank and Providian will consider lowering the higher default rate once a cardholder's credit situation improves.

The findings regarding universal default policies are included in Consumer Action's annual survey of the credit card industry released today.

"It's an easy way for them to generate more profit," spokesman Joe Ridout said."For a great deal of credit-card holders, this is something they could run into."

The survey, conducted from April 1 to June 21, examined credit card practices of 47 banks issuing 146 credit cards.

Ninety percent of banks with universal default policies raised a cardholder's interest when there was a decline in the credit score. Eighty-six percent raised rates after a late payment on a mortgage, car loan or other credit obligation.

One out of three banks with universal default policies set higher rates when a cardholder gets a new credit card, while 24 percent do so when an inquiry is made about a car loan or mortgage. (Percentages cited in the survey resulted from responses of customer service representatives).

"It's fundamentally unfair to cardholders. This is a policy that actually punishes the good customers. They don't even have to miss a payment," Ridout said.

Twelve of the 21 banks with universal default policies said the higher rates might be decreased after six months of improved credit but not necessarily back to the original rate, the survey found. Among the banks cited by Consumer Action that don't have universal default policies were American Express, Commerce Bank, Capital One, First Federal, State Farm and Wilmington Trust Company.

# posted by Medical Information : 3:26 AM