How can credit card companies charge 30% interest? Didn’t there used to be laws limiting what interest rates companies could charge? This is outrageous.
States can and do have “usury laws” limiting the amount of interest that can be charged by lenders. The problem for consumers is a 1978 U.S. Supreme Court case invoking federal preemption in this area. In the case of Marquette v. First Omaha Service Corp. case, the Supreme Court held that a national bank may charge the highest interest rate allowed in its home state, nationally. So, credit card companies can charge customers living anywhere in the U.S. the interest rate in whatever state the lending institution selects as its domicile.
Following that decision, huge New York based Citibank relocated its base of operations to South Dakota, which had more lenient interest rate caps. Other major lenders with credit card lending as a major part of their business moved to other high interest rate friendly states like Georgia and Nevada.
All interest rates, late fees or other costs and charges must be included in a cardholder agreement. If so, then the national bank may export the higher interest provided for in their home state everywhere else. Those new to the jaws of credit card lending practices are often shocked. But, there’s nothing illegal about companies charging 20% to 30% interest. The only specific requirement under federal and state law mandates full disclosure of the interest rate and all fees and charges.
© 2012 Eagle Tribune Corp. Originally appeared in Derry News under “About the Law”.