“Universal Default” is when your credit card company adjusts the terms of your loan because you “defaulted” with another company. In reader P.’s case the “default” was a Blockbuster video that his friend forgot to return. Discover Card took this opportunity to double P.’s interest rate. When he tried to fight it by closing his account, it launched him into a 2 1/2 year legal battle with Discover, a collection agency, and now the credit bureaus.

I’ve been in a dispute with Discover Card for the past couple of years involving an account I opened with them in 2001. Initially, all was well on the account, I made payments on time, kept a decent balance on it for them to earn interest from, paid them off about 2x-3x my minimum balance. Then came the day I asked a friend to return a Blockbuster Video for me, which he failed to do. I didn’t know about it until about 45 days later when I got a letter stating my account had been placed with a local collection agency. I immediately contacted the agency, explained the situation, and payed them in person at their offices within 24 hours of receiving the notice.

I checked my credit report about 45 days later to see if that collection was going to negatively affect me, and it didn’t appear on any of the big three reporting agencies, so I considered the matter over and done with. At least, until I got a letter from Discover Card stating they had reviewed my account and that they were increasing my interest rate from 11% to almost 22%(!) – despite my flawless history with them and my other three credit cards. I fought back and forth on the phone with them asking them what was going on, and eventually they revealed that it was due to a default with another agency – The aforementioned Blockbuster video that hadn’t been returned – Never mind that this had never appeared on any of the big three credit reporting agencies, and never has, so I don’t even know how they knew about it. By the time I got an answer out of them as to what was going on, I had only about a week to meet the cancel-my-account deadline they set forth, so I immediately typed up a letter demanding they cancel my account.

Considering THIS matter over and done with, I then went on about my merry way.. until I got a statement the next month showing not only the increase to my charges, but also overage charges caused by this increase in interest, and late payment fees which put me over the balance, and then, of course, overage charges. Another round of phone calls revealed that they were taking the stance that the letter had arrived 1 day after the due date and they had full rights to change the agreement since I defaulted on replying in time, and the representative refused to help me any further. Another round of phone calls the next week got me as far as getting a rep smart enough in the law to admit that the postmark is what mattered, not the date of arrival, which was a good 5 or 6 days before the due date, but of course they did not retain envelopes as evidence of when I actually sent the cancellation notice.

Ding ding, round three. I faxed the copy of the certified letter receipt and a letter explaining the legal binding of postmark over date of receipt and my situation for whom it may concern. I called a few days after this letter was delivered, confirmed that they had received it, and was assured they’d look into it.

Sometime during this whole thing I sent them a payment for $1000, as a show of good faith and that I was trying to work with them. They applied this to all the charges, which I was disputing, instead of the actual balance, and this caused a further upset and round of phone calls and letters. After this, I sent them a letter in writing stating that I would make no more payments until the matter of the interest rate and inflated charges was settled.

Eventually they finally charged the whole account off and sold the account to a series of collections agencies, each one more nasty and rude than the first. None of them understood the concept that I was perfectly willing to pay off the original remaining $1,200 balance, despite having basically been robbed for $1000 already, just none of the ever increasingly inflated charges they were demanding, despite the fact that I wrote letters of dispute to each new agency I was placed with, which seemed to happen about every 60 days or so. By this time my account had ballooned to over $3,000.

Eventually, it was placed with a law firm in my state, who demanded that I start payment on the balance they were asking ($2005, an amount which seemed to vary depending on what agency or which Discover Card rep I talked to on any given day) or they would file a lawsuit against me. Research on this particular law firm showed that they, in fact, had zero hesitation filing lawsuits, even if the charges were being disputed, or against the wrong people, etc. Other accounts I managed to dig up via Google even showed them contacting and even trying to subpeona employers, family members, you name it, and that they had a tactic of filing without serving proper notice to the defendant, obtaining a default judgment since they would fail to appear since they didn’t know about it, and dragging a simple collection into a long, involving legal matter that would cost me far more to rectify than the original balance of the debt.

Not wanting to turn what was already a dog and pony show until a full blown circus, and now 2 1/2 years into a never ending ring of disputes and challenges, I just conceded defeat and agreed to pay the balance in payments. The law firm agreed to my payment offer, and said that they were going to send me “some paperwork” to finalize everything. When the “paperwork” arrived, I found it was actually a Confession of Judgment, and there was no direct mention of the payment agreement or any stipulations that they would only file the Confession of Judgment in the event of my default, etc. This basically meant that at any time, they could choose without my knowledge or notification, to appear before a judge, show them the signed Confession of Judgment, and he could enforce whatever methods he chose to collect on the account, including repossession and docking my paycheck directly.

Naturally, I refused to sign this, and called to tell them so. I offered to have a lawyer re-draft it with stipulations that they could hold the Confession of Judgment in their care, but only file it in the event that I as 15 days or more past an agreed upon payment date, or some other kind of compromise, which they flat out refused. They basically said I sign it, or they’d get the default judgment, and that was that.

When I said I’d already retained an attorney in the matter, their tone suddenly changed, and now they wanted to talk settlement. The words “retained an attorney” apparently still do have some kind of magical intonation, even with other attorneys. They offered a settlement agreement of $1,200, which is pretty much what I owed them in the first place… well, if you exclude that $1,000 they stole to cover their bogus fees and charges, at least… so I agreed to that, and paid it within 72 hours. I waited for the letter of satisfaction from them, then another 30 days, and checked my credit report to see how it was being reported. Low and behold, all three agencies report it as having received a $1,200 payment, with an $805 balance, and it’s marked as “Charged Off/Bad Debt,” NOT as “Settlement” with a balance of zero.

I contacted the collection firm, who basically said I should contact Discover Card. Discover Card said I needed to contact the collection firm, and that they had remitted my payment, but they had never told Discover Card that a settlement agreement had been reached. I stated I had the letter of satisfaction from them, and would be happy to fax it over, and they said oh, of course, that would clear it right up. So I call a week later to confirm they received the fax, and of course no mention of it is on my account, and this has been repeated four times now.

I opened disputes with all three credit bureaus who opened investigations into the matter, and mailed them copies of the letter of satisfaction. All three updated in June with the same result:

Status:

Account charged off/Past due 180 days. $2,005 written off. $10 past due as of Jun 2008.

Obviously, $2,005 were NOT written off, a settlement was reached. And what the hell is this $10 past due as of Jun 2008?

Keep in mind I’ve already paid them $2,200 on a $1,200 balance at this point.

At this point, I don’t even care about getting my money back. I just want the bizarre balance removed and the comments to reflect that the account has been settled as agreed, with a balance due of $0. Each Discover Card representative I speak to has no prior knowledge of anything I’m talking about, and results in the same thing; fax your letter of satisfaction, and we’ll get it fixed, only to call a week later and repeat the whole process again.

I’m at the end of my patience and knowledge as to what to do here. Is there anything I can do to get my credit report updated “correctly?”

What a horror story!

In your case, we believe that it would be beneficial for you to consult a lawyer that specializes in consumer debt cases. As you pointed out, the phrase “retained an attorney” does still get the job done. Actual attorneys can be even more effective.

In the meantime, the FTC says that you can add a statement to your credit report:

If an investigation doesn’t resolve your dispute with the consumer reporting company, you can ask that a statement of the dispute be included in your file and in future reports. You also can ask the consumer reporting company to provide your statement to anyone who received a copy of your report in the recent past. You can expect to pay a fee for this service.

Good luck.

How to Dispute Credit Report Errors [FTC]

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