Released: June 22, 2006

NY State legislature bans unfair credit card ‘universal default’

Contact: Guillermo Martinez for Assemblyman Peter M. Rivera - 518-455-5102; Barbara Lee Steigerwald for Senator Charles J. Fuschillo – 518-455-3341; Linda Sherry for Consumer Action – 202-544-3088; Scott Cushing for Assemblyman Thomas Alfano – 516-437-5577

The New York State legislature has passed legislation today that outlaws the use of universal default, a commonly used and relatively unknown practice by credit card companies that increases credit card rates based on a card holder’s unrelated financial activity. New York is the first state in the nation to provide such a protection against this unfair and deceptive practice. The legislation (Assembly Bill 809A/Senate Bill 5665A) is on its way to Governor George Pataki.

According to Assemblyman Peter M. Rivera (D-Bronx), chair of the Assembly Puerto Rican/Hispanic Task Force, “This legislation will now stop the current attack on consumers by credit card and banking corporations.” The practice of raising interest rates on card holders for non-related financial activity, such as paying a utility or cable television bill late, is commonly referred to in the small print of credit card agreements as “Universal Default.”

Rivera stated, “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.”

A national authority on this issue, Dr. Elizabeth Warren, Professor of Law at Harvard Law School, has assailed the behavior of credit card companies and notes that “universal default” is actually a breach of contract by card issuers that allows them to change the terms of their agreements with consumers at will.

“Under the leadership of Senator Charles J. Fuschillo, chair of the Senate Consumer Protection Committee, and the Senate Majority, New York will have one of the strongest consumer protection measures ever passed by both houses of the Legislature. New York is once again a leader for the entire country in providing strong consumer protections when it comes to protections against ridiculous credit card company schemes,” declared Rivera, who led the fight for passage of the important legislation.

“This legislation corrects an extremely unfair business practice of which many consumers are completely unaware. Credit companies should base fees and interest rates on a customer’s account with that company only. Penalizing consumers for late payments on unrelated accounts is unjustified and will soon be prohibited,” said Assemblywoman Audrey I. Pheffer (D-Queens), chair of the Assembly Consumer Affairs and Protection Committee.

“Credit card companies are the only industry in the world to re-price something you already paid for,” said Linda Sherry of Consumer Action, a national nonprofit organization that conducts an annual survey on fees and rates. Sherry said universal default rates were as high as 29.99 percent in 2004 and have grown to as much as 35 percent this year. “I could not be prouder that my home state has passed this groundbreaking law!,” said Sherry, who comes from Sag Harbor, New York.

According to Rivera, “For too many unsuspecting consumers, the fine print of credit card agreements, mask hidden fees and late fees for a variety of reasons unknown to the card holder. The practice of ‘Universal Default’ is deceptive and unfair,” said. “This legislation would put an end to this practice and ensure that consumers are not being taken advantage of by unscrupulous creditors.”

According to Assemblyman Thomas Alfano (R-N. Valley Stream), ranking minority member of the Assembly Codes Committee, “This bill levels the playing field between the consumer and big corporations. Now, corporate greed can’t victimize a good customer.”