State Senator Charles J. Fuschillo, Jr. (R-Merrick) and Assemblyman Peter M. Rivera (D-Bronx) today announced that both houses of the Legislature have approved legislation to ban the practice of "universal default" in New York State. Universal default 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.
Nearly half of U.S. banks use universal default, enabling them to legally raise credit cardholders’ interest rates as high as 40 percent. The legislation (S.2969B/A.5325C) would prohibit credit card companies that do business in New York from enforcing universal default provisions against New York cardholders.
Senator Fuschillo, Chairman of the Senate Committee on Consumer Protection, said "Today, the Legislature voted in favor of protecting New York consumers from this unscrupulous credit card practice. Under universal default, if you miss a payment to one credit card, your interest rates on all your other cards can soar. That practice is simply unfair to consumers and has helped to drive up credit card debt for New Yorkers. This measure will help to move the credit card industry in a more consumer-friendly direction."
Assemblyman Rivera, said, "For many consumers, interest rates on their credit cards have skyrocketed and according to news media, most if not all consumers are unaware that credit card companies are basing the interest rate on future irrelevant financial activity of the card holder. This legislation sends a clear message that this type of anti-consumer behavior will not be allowed in our State anymore. I strongly encourage the Governor to sign this legislation into law."
There are approximately 30 million credit cards issued to New York residents, with the average consumer holding more than four cards in their wallets. Statistics show that the average U.S. household carries about $9,300 worth of credit card debt.
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 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).
The legislation will be sent to Governor Spitzer for final approval.
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