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Ask Dr. Don
By
Don
Taylor,
Ph.D.,
CFA
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Bankrate.com |
Usury Limits
Dear Dr. Don,
I have a credit card with an interest rate that
is now up to 39.99 percent. Is this illegal? It started out lower
but has really gotten up there.
Thank you
Loren Loan
Dear Loren:
Your credit card agreement gives the provider the right to raise
the interest rate on your credit card under certain conditions,
such as late payments on any loan, or for any reason at all as long
as it provides the notice required in the agreement -- typically
15 days. This Bankrate feature
shows the ways creditors look for an excuse to raise your rates.
Consumers expect protection from their state's usury
laws, but the governing law is the maximum interest rate permitted
in the bank's home state. Credit card companies headquarter in states
with high rates or no maximum rates so they can have more flexibility
in setting rates.
A 1978 Supreme Court decision in Marquette vs. First
Omaha Services confirmed the legality of nationally chartered banks
exporting the terms of their cards to states where the laws regarding
interest rates restricted such practices. This Bankrate feature
has more on this practice.
It's a pretty ugly cycle. You have trouble paying
your bills on time so the credit card company raises your interest
rate. With the higher interest rate, even more of your monthly payment
goes toward paying interest vs. paying down the balance. In your
situation, paying down balances while being charged almost 40 percent
in interest may be virtually impossible.
Depending on your overall financial situation, credit
counseling or bankruptcy may be your best solution. The FTC guide,
Fiscal
Fitness: Choosing a Credit Counselor, can help you make a better
decision as will Bankrate's Guide
to Managing Credit. A credit counselor may be able to reduce
the interest rate on your debt and will be able to structure a debt
management plan to help you get out from under your credit card
debts.
-- Posted: Jan. 30, 2004
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