Category Archives: Credit Cards and Bankruptcy

Why Are Credit Card Interest Rates So High?

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There are price gouging laws in time of emergencies to not allow improper increases in price to make money. There are state usury laws limiting how much interest can be charged when lending money. Why are credit card interest rates so high? How can a bank charge 29% interest on a revolving unsecured credit account? It is like loan sharking right? I would say yes, it is like loan sharking and it used to not possible by law for our protection. My best analogy is seatbelt laws. Seatbelt laws save lives. This is a fact and without seatbelt laws requiring wearing seatbelts not as many people would wear seatbelts and vehicle deaths would be higher. Well, The Supreme Court of the United States more or less opened the door to the repeal of seatbelt laws regarding limits on interest rates and people have been getting killed with credit card interest rates ever since. We all need to be saved from ourselves sometimes and our laws protect us. So what happened?

State Usury Laws

First let us talk about state usury laws. Each state can have usury laws limiting how much interest can be charged under different types of financial transactions. Over time many exceptions and loopholes have been created to allow lenders in different forms of loans to charge ridiculously high interest rates. See our other bankruptcy attorney articles about 1,000% interest title loans and payday loans. Somehow these horrible loans are legal though . . . . Below are the various sections of law in California that make up California usury laws. Generally, and very generally, 10% is the highest interest rate under California usury laws depending upon the type of financial transaction.

California Const. Art. XV §1
California Civil Code §§1912-1916.12
California Civil Code §§1916-1 to 1916-3
California Civil Code §§1917-1917.006
California Civil Code §§1917.060-1917.069
California Civil Code §§1917.160-1917.168
California Civil Code §§1917.610-1917.619
California Commercial Code §§9201-9208
California Corporations Code §§25116-25118
California Financial Code §§22000-22064
California Government Code §§5900-5909

Why Are Credit Card Interest Rates So High?

If there is state usury laws limiting the amount of interest that can be charged how can banks charge 29% interest on a credit card debt? The case is Marquette National Bank v. First of Omaha Corporation, 439 U.S. 299 (1978). Somewhere there is a bankruptcy attorney, not this one, cheering for these high interest rates given unmanageable debts drive bankruptcy filings. “The First National Bank of Omaha (Omaha Bank) is a national banking association chartered in Nebraska; it is enrolled in the BankAmericard plan, and solicits for that plan in Minnesota. Omaha Bank charges its Minnesota cardholders interest on their unpaid balances at a rate permitted by Nebraska law, but in excess of that permitted by Minnesota law.” So there you go. First National Bank of Omaha solicited clients in the state of Minnesota but chose not follow Minnesota state law regarding interest rates. First National Bank of Omaha charged higher interest rates according to the law in which they were located, the state of Nebraska. What should be controlling was the issue? Generally speaking the law of the jurisdiction where the individual is located, a state or country, governs their legal rights and not the corporate headquarters or location of the business they are doing business with. Each state has usury laws to protect their state residents within that state and limit interest rates. Each state in the United States has many different laws than other states. Family law is a great example and the 8.5 community property states vs. equitable distribution in the remaining 41.5 states. Why is there a 0.5? Alaska is an opt-in community property state. Save that one for Jeopardy. Back to . First National Bank of Omaha and how they arguably disrespected the state law of Minnesota. SCOTUS provided: “Though the “exportation” of interest rates, such as occurred here, may impair the ability of States to maintain effective usury laws, such impairment has always been implicit in the National Bank Act, and any correction of that situation would have to be achieved legislatively. Pp. 439 U. S. 318-319.” So under the federal National Bank Act what The First National Bank of Omaha did was okay even though it violated the usury laws of Minnesota. There you have it and the rest is history.

But wait. What state allows interest rates of 29%? This is where capitalism and greed took over and now we have more deaths by higher interest rates than before 1978. Certain states repealed or changed their usury laws to allow for high unconscionable interest rates. These states did this to lure the big banks to set up shop in their states to create jobs in these states. Well it worked. So for a few thousand jobs millions of Americans can be charged massive interest rates that we can all agree of too high.

What is the legislative solution SCOTUS mentions in The First National Bank of Omaha? Our United States legislatures, the Senate and House of Representatives, would have to pass legislation to limit interest rates and then that would applicable nationally. Do not hold your breath given our federal legislatures chose to bailout these same banks from the mortgage meltdown. Too big to fail means too big to be honestly regulated.

How Long Does a Credit Card Company Have to Enforce an Unpaid Account and Statute of Limitations

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So you are having trouble making your credit card payments and probably wondering what will happen next?  The next few paragraphs will discuss the treatment and removal of unpaid credit card accounts based upon the Fair Credit Reporting Act and the statute of limitations under California law only.  Each state has its own statute of limitations for causes of action like enforcing an unpaid credit card debt.

What is a Statute of Limitations?

The first issue is what is the statute of limitations?  The statute of limitations is the length of time that one has to file a lawsuit to enforce a claim such as an unpaid debt, a personal injury cause of action or a products liability claim.  When you sign up for a credit card, you are entering into a written contract agreeing to pay back the money you charge to the credit card under varying terms.  When payment is not made, the contract is breached.  In California the statute of limitations for breach of contract is four years.

When does the Statute of Limitations start?

Generally the statute of limitations begins to run when the cause of action accrues or begins.  This is a complicated area of the law and this article will only touch on general information and not a case by case analysis your case may require.  When the statute of limitation usually begins is when you breach the contract by not paying, or the cause of action accrues arising from the date of last payment or when demand for full payment is received.  In California, pursuant to California Civil Code Section 337, the statute of limitations for breach of contract resulting from nonpayment is 4 years.  In California, the statute of limitations can be extended only by a new agreement in writing to agree again to repay the credit card debt.  If a credit card company does not file a lawsuit within 4 years from the date of last payment or when demand for full payment was received, and no new agreement in writing has been executed, the debt is then time-barred and is not legally enforceable.  The only way the credit card company can then get a payment from you is if you voluntarily choose to make a payment.  Some credit card agreements have an acceleration clause that must be invoked and once a payment is missed, then the statute of limitations begins to accrue.

What Happens if a Credit Card Company Does Not File Suit Within the Statute of Limitations and the Debt is Time-Barred?

There is also a statute of limitations regarding credit reports.  The statute of limitations for reporting accounts and credit reports is controlled by the Fair Credit Reporting Act (FCRA).  If a credit card company in California does not sue within 4 years and the debt becomes time-barred, it is still a negative account on a credit report though.  Pursuant to the FCRA negative accounts can remain on a credit report for 7 years and positive accounts can remain for 10 years.  There are some exceptions that are not listed here, so consult a professional in your state for the exceptions.  If a credit card company does not sue to enforce the payment of the debt, the next step is to dispute the negative account with all three credit bureaus.  The credit bureaus, Experian, Equifax and Trans Union are prohibited from continue to list old negative accounts on credit reports and must remove inaccurate item in 30 days.  To dispute a credit account on a credit report you will need a recent copy of your credit report.  There are a number of websites that will provide a free credit report.  Then to dispute an item on a credit report, you may write a letter, file a dispute on-line at the credit bureaus website and even by telephone.  Go to the Federal Trade Commission website at: www.ftc.gov/bcp/edu/pubs/consumer/credit/cre21.shtm.

If a credit card company unfortunately seeks to enforce a debt by filing a lawsuit, it is time to consult one of our best bankruptcy lawyers or experienced bankruptcy lawyers for advice.  You may contact us toll free at 1-877-963-9543.

The CARD Act: Will This New Law Help Consumers

The Credit Card Accountability and Disclosure Act (CARD Act) was passed in 2009 to protect consumers from abusive credit card issuers. One of the driving forces providing bankruptcy attorneys more clients is overwhelming credit card debt. Here’s how some of the laws will affect you.

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You Will Receive Notice of Rate Changes

The CARD Act prohibits credit card issuers from arbitrarily increasing your APR without 45 days notice and applying rate increases to existing credit card balances. The credit card issuers must also provide you with notice and the right to cancel your credit card and pay off the existing balance if the interest rate increases. The Act will also prevent a credit card issuer from increasing the rates in the first year after a credit card has been opened and requires promotional rates to last at least 6 months.

You Will not be Penalized for Making Timely Payments

The CARD Act prevents credit card issuers from charging interest on debts that are paid on time, otherwise known as “double-cycle” billing. It also requires credit card issuers to credit payments made at a local branch store immediately to your account, and it prevents credit card issuers from charging late fees if they delayed crediting payments made. If your rate increased, but you have been making payments on-time for at least 6 months, credit card issuers are required to review your account and return to your interest rate to the interest rate prior to the increase. If you make payments in excess of the minimum payment, the excess amount will be applied towards your debt with the highest interest rate first.

Your Payment Due Date Will be the Same Every Month

Your payment will be due by 5:00 p.m. EST on the same day every month, and if this date lands on a weekend or holiday, the due date will be pushed back to the next business day. Credit card issuers are also required to provide you with notice regarding penalties and late fees they will charge if you are late. In addition, credit card issuers are required to mail out credit card statements at least 21 days prior to the payment due date.

Prevents You From Paying Unfair Fees

The CARD Act prohibits credit card issuers from charging a fee for taking payments, either by phone, mail, online, etc. except in instances where you receive live in-person service to make expedited payments. It also prohibits credit card issuers from charging over-the-limit fees unless you “opt-in” for the credit card issuers to complete over-the-limit transactions. The fees charged by the credit card issuers must be reasonable and proportional to the violation, and it protects you from excessive fees on low-limit, high fee credit cards.

You will Receive More Detailed Information from Credit Card Issuers

Your credit card issuer will need to include more information on your credit card bill, including: 1) if you only make minimum payments, how long will it take for you to pay off your debt, and how much total interest you would have paid, 2) how much you would need to pay per month if you wanted to retire your debt in three years, how much total interest you would have paid, and 3) the difference between 1) and 2).

You will be Protected Against Misleading Terms

The CARD Act prevents credit card issuers from using terms such as “fixed rate” and “prime rate” in a misleading manner by providing set definitions to those terms. Credit Card issuers also must use a minimum font size for their statements to provide you with better readability. You also have an opportunity to reject any pre-approved credit card up until the moment of activating the card.

Strengthens Oversight of the Credit Card Industry

The CARD Act requires credit card issuers to post the credit card agreements on their website, and to provide their agreements to the Federal Reserve Board to post on their website. It also requires the Federal Reserve Board to review the consumer credit card market and allows the Federal Trade Commission powers to make rules preventing deceptive marketing of free credit reports.

Younger People will be Safeguarded from the Credit Card Issuers

Credit cards will not be issued to anyone under 21 years of age unless they have a co-signer over 21 and limits the amount of prescreened offers to younger people. The CARD Act also requires banks to provide a reason to participate on college campuses and university-themed events. The CARD Act prohibits banks from giving out promotional material to entice consumers into taking on debt by signing with their credit cards.

You will Receive Gift Card Protection

The CARD Act requires a minimum of a five year lifespan on gift cards issued. Credit card issuers are prohibited from charging hidden fees and declining values on gift cards unless the gift card has been inactive for at least 12 months. If fees are charged after this period, it must be clearly stated on the gift card, and credit card issuers cannot charge more than one fee per month under any circumstances.

The above benefits are a summary only! As with most laws, there are many rules and exceptions. Please consult with an attorney if you need legal advice. We have bankruptcy attorneys ready and available to help you, with offices in Oakland, San Francisco, San Jose, and Redwood City for your convenience.