How A Move to South Dakota Allows Citibank and other Banks to become Loan Sharks

Banks are aggressively raising credit card rates. People are seeing 8% credit card rates rise to 25% or more practically overnight. Even people with stellar payment histories and great credit scores are seeing their rates go through the roof.

Interest rates like 25% were once thought to be usury and were frequently banned by state laws. Usury is defined as "the lending of money at exorbitant interest rates."

So how do credit company get around state laws banning usury interest rates?

Consumers have the Supreme Court to thank.

In the case of Marquette National Bank of Minneapolis v. First of Omaha Service Corporation, the Supreme court ruled that nationally chartered banks could charge people in other states the maximum interest rate allowed by the state in which the bank was headquartered.

So if you live in a state that bans super high interest rates, you're credit card company can still charge you 25% interest or more as long as that company is located in a state that has no anti-usury laws.

Seeing a business opportunity to attract large banks to their states, some states like South Dakota did away with their anti-usury laws by eliminating interest rate caps.

This explains why CitiBank, Wells Fargo, and other banks have moved to South Dakota. Not to be outdone, Delaware and a host of other states also dropped their interest rate caps luring large banks to these states as well.

So it seems that there is little we can do from preventing credit card companies from charging loan shark type interest rates.

And the problem is only expected to get worse as more and more credit card companies dramatically increase interest rates.

Our best revenge - try to cut down on our credit card purchases.