Legislature bans credit card universal default

Right before the legislature recessed for the summer, both houses reached an agreement on legislation that would prohibit credit card companies from raising interest rates on a credit card if a customer makes a late payment on a different card.
The bill, which legislators are calling “first in the nation,” would effectively end the practice known as universal default on the 30 million credit cards New York residents currently hold. Nearly half of U.S. banks use universal default, enabling them to increase credit cardholders’ interest rates as high as 40 percent.
Assemblymember Audrey Pheffer, who chairs the Committee on Consumer Affairs and Protection, said the legislation not only attempts to protect consumers from credit card companies using late payments to other credit cards as a reason to increase interest rates, but also to prevent late payments on telephone or utility bills as an impetus to rise interest rates.
After the legislation passed in the Assembly, Pheffer said the Senate made minor, technical alterations to the bill and passed it.
“Under universal default, if you miss a payment to one credit card, your interest rates on all your other cards can soar,” said Senator Charles Fuschillo, Chair of the Senate’s Committee on Consumer Protection. “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.”
Meanwhile, Pheffer said federal legislators are looking to eliminate universal default, but she hopes Governor Eliot Spitzer will sign this legislation so it could be used as a model for federal and other state legislators.