Usury Boozury
Usury: the act of lending money at an unreasonably high interest rate.
Marquette Nat. Bank of Minneapolis v. First of Omaha Service Corp
This is a court case that happened in 1978 which changed the credit card business in the United States for more than 25 years.
The story goes like this (Drunk-History style): In 1978 two banks from two different states were competing fiercely against each other for business (Minneapolis and Nebraska). One bank charged 12% interest on credit cards and the other bank charged 18% interest on their credit cards. We’ll call NEBRASKA STATE A and MINNEAPOLIS STATE B.
State B starting selling their cards aggressively in State A, stealing market share and also enjoying a higher profit margin. State A sues State B saying “that’s not fair bro”. Yada Yada Yada,, the case ends up in the Supreme Court.
It got interesting because the Supreme Court ruled (unanimously 9-0) that whatever state a credit card company held it’s head office, it could export the interest rate laws of that state to any other state in the country. For example, suppose the Bank of Robbinhell held its head office in New York but sold its credit cards to people in California, it would only be limited by New York State law.
Major banks immediately recognized the loophole and partnered with the little-known states of South Dakota, Idaho, and Delaware. These states saw the opportunity to import jobs and not only raised interest rate ceilings but removed them altogether.
It was a match made in money-printing-heaven. What started out as a quarrel between two smaller banks over a 6% interest rate spread, ended up opening the doors for major banks to not worry about interest rate laws altogether. Banks en masse relocated their head offices to these smaller states.
Consumer debt exploded over the next 25 years. One company even offered a credit card with an annual interest rate of 79.9% (Barf)
COMIC #42
