How Can Credit Card Companies Charge Such High Interest Rates?


Have you ever heard of usury state laws?  Most likely you have not.  Every state can control by law the amount of interest that can be charged when money or credit is extended.  The California Code and a number of subsections govern the interest rates that can be charged in California.  Personal loans and consumer loans in California have a usury interest rate attached to these loans of 10%.  The interest rate established for non-consumer loans is 5% greater than the interest rate duly established by the Federal Reserve Bank of San Francisco.

Again, so how can credit card companies charge such high interest rates?  The answer is the need for jobs, capitalism and Marquette National Bank v. First of Omaha Corporation, 439 U.S. 299 (1978).  This is a 1978 Supreme Court of the United States (SCOTUS) case that led to the change in how much you pay for interest on credit card debt.  SCOTUS more or less ruled that First Omaha Corporation could charge citizens of other states the allowed interest rates for the state where First Omaha was located, not the state interest rate where the customer resides.  12 U.S.C. 85 authorizes a national banking association “to charge on any loan” interest at the rate allowed by the laws of the State “where the bank is located.  This means that First Omaha Corporation, located in the state of Nebraska, could charge the higher interest rates Nebraska state law allowed to customers they obtained in other states.

Okay, so how did this lead to 29% interest rates when most state usury laws protect us from such high interest rates?  Well, this is where the need for jobs and capitalism took over.  Guess what happened next?  Certain states really needed jobs for their residents.  The state legislatures of these certain states basically did away with their state usury laws to entice banks that issue loans and credit cards to set up shop there and give their residents jobs.  It worked really well.  South Dakota is home to thousands of jobs as of a result because banks flocked there to set up shop and charge higher interest rates to customers in other states.  South Dakota is not the only state that did this.  A few other states repealed their state usury laws limiting interest rates to attract banks too.  So, basically the rest of the millions of citizens of the United States who have credit cards can legally be charged an interest rate of 20% or more on their credit cards so that these few states could generate a mere few thousand jobs for their residents.

High credit card interest rates are one of the common reasons our bankruptcy clients speak of when explaining their reasons for choosing to file for bankruptcy protection.  Contact our bankruptcy lawyers toll free at 1-877-963-9543 to discuss your circumstances and find out if bankruptcy can help.