State Bill would Ban Universal Default in New York

The New York state legislature passed this week a measure that would ban universal default, the practice used by some credit card issuers to raise the interest rate on a cardholder’s account when the cardholder is late on a payment to another creditor.

The proposal would prohibit card issuers that do business in New York from using universal default on New York cardholders.

Sponsors of the proposal claim that nearly half of credit card issuers use universal default and that there are about 30 million credit cards issued to New York consumers. The co-sponsors were Sen. Charles J. Fuschillo, Jr., a Republican from Merrick and Assemblyman Peter M. Rivera, a Bronx Democrat.

The measure will go in a few weeks to Gov. Elliot Spitzer for his signature, says Guillermo Martinez, legislative director for Rivera. Spitzer has 10 business days to sign or veto the proposal; if the signs it, it becomes law in 30 days, says Martinez. The legislature passed a similar measure last year that was vetoed by Gov. George Pataki. Martinez says Spitzer’s pro-consumer background indicates he will sign the measure.

Both the Illinois and the Nevada State Senate passed similar measures in May, according to the National Conference of State Legislatures. Martinez says that several other states have expressed interest in using the New York measure as a model. “We’ve seen interest from California, North Carolina, South Carolina and Vermont,” he says.