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PSN on August 24, 2006 - 9:39am
You sign up with a credit card promising you a fixed interest rate. You pay all your credit card bills on time and in full, but slip up paying a bill to a totally different company, say the power company, a bit late. Your credit card company suddenly changes the rules and raises your credit card rate to up to 35%, based on a provision buried in the fine print of credit card agreements called "universal default."
New York legislators, spurred by consumer complaints, enacted A00809 to bar credit card companies from raising interest rates because a customer missed or made a late payment to a different creditor. As Assemblyman Peter M. Rivera (D-Bronx) said upon passage, "This legislation sends a clear message that this type of anti-consumer behavior will not be allowed in our state anymore."
Unfortunately, Governor Pataki gave in to credit card industry lobbyists and vetoed the bill, giving his "stamp of approval to a deceptive practice that costs consumers millions of dollars in inflated interest payments," in the words of Harvard Professor Elizabeth Warren, who has written extensively on the credit card industry's manipulation of consumers and the political process.
While the law would have had limited impact, since the banking industry has designed federal law to limit how much states can regulate national banks, the legislation could have become a model for other states and, more dangerously, for national lawmakers. And the existence of the law would have helped consumers in validating their claims in court that many people feel such default clauses are deceptive practices.
We can only hope that the New York legislature will override the veto and send the credit card industry a message that these kinds of unfair consumer practices have to end.