State Senator Charles Fuschillo (8th District) today announced that he is the sponsor of legislation that would ban the practice of "universal default" in New York State, which allows credit card companies to increase interest rates if a cardholder makes a late payment to another credit card company or even pays a phone or utility bill late. The practice has forced some consumers to pay twice the amount of their credit card bills because of interest and fees.
Senator Fuschillo, Chairman of the Senate Committee on Consumer Protection, said, "Under universal default, if you are even just one day late on any payments to any creditor, you can be subject to interest rates of more than 30 percent on your other credit cards. This trap that the card companies have laid can trigger a spiraling financial crisis for consumers, leading to an endless cycle of debt for some. We need to stop this predatory practice throughout the nation, starting right here in New York State."
Senator Fuschillo also praised a recent bipartisan United States Senate hearing held in Washington, D.C. for drawing national attention to the problems associated with universal default.
Universal default clauses are increasingly common provisions in credit card agreements that allow a credit card company to increase a cardholder’s interest rate or impose additional fees and charges based on the cardholder missing a payment to another creditor, such as a credit card company, mortgage lender, or the telephone company. Information about universal default is usually buried in the fine print of a credit card agreement.
While credit card companies have always had default interest rates, late fees or other charges imposed on cardholders who fail to make timely minimum payments, with universal default, a company views a default to any creditor as a default to itself and then penalizes the cardholder.
Nearly half of U.S. banks have universal default clauses, with universal default rates running as high as 35%. Senior citizens and college students, two groups that have been identified as relying more on credit cards in recent years, are impacted greatly by universal default and other credit card practices. According to a new study by the National Consumer Law Center, the average credit card debt for consumers aged 65 to 69 has skyrocketed 217 percent over the last decade to $5,844. Forty-seven percent of college students have four or more credits cards, and students double their average credit card debt and triple the number of credit cards in their wallet by the time they graduate college (Nellie Mae Credit Card Study).
Senator Fuschillo’s legislation, S. 2969, would prohibit banks that do business in New York State fromenforcing universal default provisions against New York cardholders. The measure was approved by the State Senate and the State Assembly last year, but was vetoed by then-Governor George Pataki.
The New York State Senate Committee on Consumer Protection will soon be convening a series of public hearings concerning the use of universal default by credit card companies in New York State.
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