FUCAN, the San Diego based Utilities Consumer Action Network (www.ucan.org) filed suit in California's Superior Court this week against Discover Card, citing the use of a universal default clause in Discovers card agreements and the inclusion of such a clause to all existing accounts with a small notice sent with the monthly statements. The Universal default clause, which is hidden in most credit agreements under a note about defaults, is: "Your APRs may increase if you default under any Card member Agreement you have with us for any of the following reasons: we do not receive at least the minimum payment due by the date and time due as shown on your billing statement for any billing cycle for which a payment is owed, you exceed your credit line on this Account, you fail to make payment to another creditor when due, you make a payment to us that is not honored by your bank."
Here is some of the UCAN story: Imagine opening your credit card bill and learning that you are no longer paying 3.9% interest -- as promised in the original the promotional deal. Instead, the rate has been jacked up to 19%. Put in dollar terms -- a customer with a monthly payment of $33 on a $10,000 balance, would now be forced to pay $158 each month. Whoa there! What happened? Here's what happened: Discover exercised its right to jack up that customer's interest rates because the card issuer "discovered" that the customer had been late in paying a phone bill. Never mind that it was a contested phone bill that the customer believed was in error and was protesting. Discover didn't care -- this little known clause that was hidden in an innocuous "addendum" mailed to that customer just months before gave Discover the right to modify the interest rate or even cancel the account and demand full payment if that customer had a late payment to ANY OTHER CREDITOR. ICFE does not accept Discover Card in its online bookstore.