State Senator Charles J. Fuschillo, Jr. today urged Congress to enact a law to ban universal default, a practice used by credit card companies to raise interest rates based on credit scores, even if card holders are paying their credit card bills on-time. Senator Fuschillo also again questioned Governor Spitzer’s veto of a proposed law that would have prohibited this practice, called universal default, in New York State.
The United States Senate Homeland Security and Governmental Affairs Investigations Subcommittee is conducting a hearing today focused on unfair interest rate increases, including universal default.
Senator Fuschillo, who is the chairman of the Senate’s Consumer Protection Committee, and the sponsor of the proposed New York law to ban universal default, said, "Universal default is one of the many traps that credit card companies use to help drive up credit card debt for New Yorkers and all Americans. If Governor Spitzer had signed this bill into law last summer, New York could have been a leader in the fight to protect credit card holders and could have sent a strong message to Congress that this unfair practice needs to be banned nationwide as well."
Senator Fuschillo’s proposed law (S. 2969) would have prohibited credit card companies that do business in New York from enforcing universal default provisions against New York cardholders. The legislation was approved by both the State Senate and the State Assembly, but was vetoed by Governor Eliot Spitzer in August.
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. Under the practice, a credit card company will use a drop in a card holder’s credit score as justification for raising the card holder’s interest rate, even if the card holder has a history of paying bills for that particular credit card on-time.
There are approximately 30 million credit cards issued to New York residents, with the average consumer holding more than four cards in their wallets.
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