What is Universal Default?

Legal Definition
Universal default is the term for a practice in the financial services industry in the United States for a particular lender to change the terms of a loan from the normal terms to the default terms (i.e. the terms and rates given to those who have missed payments on a loan) when that lender is informed that their customer has defaulted with another lender, even though the customer has not defaulted with the first lender.

This is a phenomenon that dates from the mid-1990s. Credit card companies included universal default language in their cardholder agreements at that time, due to increasing deregulation of the industry. Today, approximately half of the banks that issue credit cards have universal default language. However, since the inception of these provisions, most credit card companies have not enforced them regularly or systematically.

Every year since at least 2003, Congress has considered several bills to curb abusive credit card practices, including universal default provisions. In the meantime, the Office of the Comptroller of the Currency issued a stern advisory letter to the credit card industry regarding several of the most egregious practices. Most credit card companies have not responded to the letter.

In 2007, Citibank became the first bank to voluntarily eliminate its universal default provision.

In 2009, most forms of the practice were outlawed in the United States.
-- Wikipedia