New York State Moves to Outlaw Credit Card Universal Default Clauses
New
York State Moves to Outlaw Credit Card Universal Default Clauses
According to various news
reports from New York, the state’s legislature has sent
a bill to Governor George Pataki that would make it illegal
for credit card companies to raise cardholder interest rates
under “universal default” clauses in credit card contracts.
Universal
default clauses written into some credit card issuers’ terms
and conditions allow the issuer to raise the cardholder’s interest
rate if the cardholder is late on any bill, including being
late on bills entirely unrelated to the payment of the credit
card itself. While credit card companies who use the clause
say universal default–which can cause rates to jump from the
teens all the way past 30%–are protection against customers
with a track record of not paying their bills, consumer groups
argue that they are simply a way to make money from unsuspecting
customers.
After
the initial uproar over universal default clauses, several issuers
removed them from credit card contracts. Estimates vary on how
many still use the clauses, but it is generally agreed that
it is less than half.
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