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New York State Moves to Outlaw Credit Card Universal Default Clauses

by Peter Andrew
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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