Requires banks to issue a credit card that does not permit cash advances

BILL NUMBER:S4298

Title of bill

An act to amend the general business law, in relation to the issuance of credit cards

Purpose

Enactment of this legislation would require entities issuing credit cards in New York State to also offer a credit card option which does not permit the use of cash advances.

Summary of provisions

Section 1 amends Section 515 of the general business law, as amended by chapter 1050 of the laws of 1971 by stating that any entity issuing a credit card in this state must office a credit card option which does not permit the use of cash advances.

Existing law

No such provision exists under existing law.

Justification

Paying with a credit card is an easy way to make purchases, but using a card wisely and paying bills on time also helps in building a good credit history, and that helps in establishing other types of credit. In fact, people with good credit generally receive the best rates and terms on mortgages and other loans.

Credit cards that offer advances usually first time card holders, obtain cash from a bank or ATM. This cash may in turn used to buy drugs or other illegal goods.

In most cases, when a credit card is used to withdraw cash, higher fees come into play.

* a cash advance fee is normally an upfront fee 2% to 4% of the cash advanced. * the cash advance on the credit card always has a higher interest rate than that applied to normal purchases. * the interest starts as soon as you get the money out of the ATM or from the bank teller. * many of the credit card companies also require that you payoff all the balance from your purchases before you begin to payoff your cash advance. * the average cash advance rate is 21.65% on all cards.

Banks and other entities say that cash advances are a risky business they cost more to process and frequent users are more likely to default. In fact, those that utilize the cash advance features are likely to either make their payment late (Which results in a late fee or a hike in interest rates) or default entirely, thereby ruining their future credit Scores.

However, may responsible parents may want to provide their children with the security that a credit card offers. By requiring financial institutions to issue a credit card with an option to prohibit cash advances parents have the ability to protect their children, their credit ratings and their well being.

Legislative history

S.1950 2008 - Referred to Consumer Protection.

Fiscal implications

None.

Local fiscal implications

None.

Effective date

This act shall take effect immediately.