Why Credit Card Companies Charge Such High Interest Rates
The short answer is because corporate profits and corporations in general are favored over protecting the individual from harm these days. Below is only one court decision in the long dismantlement of individual rights in favor of corporate rights. Every state, well, every state used to have usury laws. Have you ever heard of them? Probably not. Usury laws control the amount if interest that can be charged when money is lent or credit extended. In California certain loans and consumer loans cannot have interest rates that exceed 10%. For non-consumer loans the interest rate is 5% greater than the interest rate established by the Federal Reserve Bank of San Francisco.
Marquette National Bank v. First of Omaha Corporation, 439 U.S. 299 (1978)
I am not saying corporations are all bad, but keep reading and you may agree that your individual rights were trumped by corporate rights. Or possibly the need for jobs of a few change the landscape of how and what credit card companies could charge you interest.
The case is from the Supreme Court of the United States (SCOTUS), Marquette National Bank v. First of Omaha Corporation, 439 U.S. 299 (1978). 12 U.S.C. 85 allows a national banking association to charge on any loan an interest rate allowed by the laws of the state where the bank is located. So First Omaha Corporation, which is in Nebraska, decided it could make more money by charging the interest rates allowed by Nebraska law to customers of other states. Even if the other states usury laws did not allow the higher interest rate to be charged.
Another bank more or less challenged this practice and SCOTUS said it was okay for First Omaha Corporation to do this. You could also see this as federal law trumping state law which is a whole other argument and issue that could be discussed forever. So how did this lead to such high interest rates for credit cards if all states have usury laws capping the amount of interest that can be charged?
Most Bankruptcy Filings Are Motivated by Credit Card Debt
Capitalism and the need for jobs took over. As a bankruptcy attorney I can tell you the number reason why most people seek the protection of filing for bankruptcy is credit card debt. There are usually other issues, but the amount spent on credit card debt each month becomes too much to handle. So guess what a few states did? They repealed their state usury laws to make their states attractive to banks to set up shop and issue credit cards from their state at high interest rates. That is right. You now have to pay 29% interest so the residents of South Dakota, there are other states too, can have a few jobs. Did these states need jobs for their residents? Yeah, probably. Was it worth billions of dollars in interest charged to their fellow Americans in the rest of the United States? I will let you be the judge of that. How many bankruptcy cases would not be needed if all states still had their usury laws on the books limiting the amount of interest that can be charged though? Probably millions.
Rob Cohen, the Managing Partner of Cohen & Cohen P.C., is a bankruptcy attorney that practices in Colorado and Wyoming. He serves as a Chapter 7 Bankruptcy Panel Trustee, and has to date administered over 8,000 Chapter 7 bankruptcy estates. Rob is a Certified Consumer Bankruptcy Specialist, and was nominated for Denver Business Journal’s 40 under 40 in both 2014 and 2016.