Prohibits "universal default clauses"; and prevents credit card issuers from increasing interests upon the holder of such credit card for late payment to creditors

2 Co-sponsors

• Ruben Diaz
• Liz Krueger

Title of bill

An act to amend the general business law, in relation to prohibiting "universal default clauses" in credit card agreements and related increased interest rates

Purpose

To prohibit credit card issuers from applying a universal default clause, and preventing interest rate increases for the cardholder due to late payments to other creditors,

Summary of provisions

This bill would amend the general business law, section 511, by adding a new subdivision 11, which defines the term "Universal default clauses"; re-designating Section 521-f to Section 521-h, and adding new sections 521-f and 521-g, which prohibit the application of universal default clauses imposed by credit card issuers upon the cardholder due to late payments to another card issuer or creditor (521-f); and prohibiting increased interest rates imposed by credit card issuer upon the cardholder due to late payments made to another creditor (521-g).

Existing law

Currently, there is no prohibition on Universal default clauses related to credit card contracts.

Justification

Currently, almost all major US. credit card issuers include "Universal default clauses" (UDC's), which allow credit card companies to increase interests rates based on the cardholders payment history with another credit card company. These UDC's are justified by the credit card company because it is their argument that they are charging these rates based on the individual's credit score. However, when a customer has paid his/her balances on time each month with past creditors, the current credit card issuer does not lower interest rates based on good payment history with past credit card issuers. Therefore, the question arises why should interest rates escalate based on past poor payment history, when a credit issuer does not offer positive incentives based on a responsible payment history. Moreover, it should not be the right of a credit card company to be concerned with a consumer's past performance, so long as they have paid the current credit card company on time. Furthermore, although New York State has a interest rate loan cap of 25%, this percentage is still extremely high. The residents of New York State need to be protected against the "fine print" in credit card agreements and protected against the abuse of credit card companies that are strategically based in other states where the caps are very low, if any (e.g. See Delaware, South Dakota, and Tennessee State Usury laws).

Legislative history

S.1924 of 2007 01/29/07 Referred to Consumer Protection 01/09/08 Referred to Consumer Protection

Fiscal implications

None.

Local fiscal implications

None.

Effective date

This act shall take effect on the ninetieth day after it shall have become a law.