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Laws capping interest rates

Q. Are there laws capping credit card interest rates?

Less than half of all U.S. states bother to cap credit card interest rates, and few credit card issuers are based in these states anyway.

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Most major credit card issuers are based in states without usury laws and without interest rate caps on credit cards. Banks and credit card issuers based in these states can charge any interest rate they wish -- as long as the rate is listed in the cardholder agreement and the borrower agrees.

And thanks to a 1978 U.S. Supreme Court decision, these the-sky's-the-limit rate policies dominate the credit card business.

In Marquette vs. First Omaha Service Corp., the Supreme Court ruled that a national bank could charge the highest interest rate allowed in their home state to customers living anywhere in the United States, including states with restrictive interest caps.

When it comes to credit card interest rates, the law in a lender's home state rules. It doesn't matter what kind of rate cap exists in a customer's state.

In 1982, the four largest banks in Maryland relocated their credit card operations to Delaware because of that state's lender-friendly credit card laws. Other states with lender-friendly credit laws include Georgia, Illinois, Nebraska, Nevada, Rhode Island and Utah.

To hang on to the credit card business, many other states loosened state usury limits.

In the early '80s, most states capped credit card interest rates between 12 percent and 18 percent. Today's caps are in the 18-percent to 24-percent range.

In many cases, there's no law stopping an issuer from charging you a super-high interest rate or an interest rate higher than you deserve.

The only person who can insure that you get a good card rate is you. The best advice is to build a strong payment history and keep your credit as clean as possible.

You can bet a credit card issuer will up your interest rate if they see something on your credit report they don't like. Don't give them a reason. Pay your credit and other bills on time, every month. Here are some tips on avoiding credit card late fees.

Let's say your credit record has improved since you applied for your card. There's a good chance you qualify for a lower rate. But no card issuer in the world is going to knock down your rate unless you ask. So call and ask. Have other lower rate credit card offers in hand when you call.

If your issuer won't lower your rate, transfer your balance to a lower rate card. This article by Bankrate.com will show you how.

Always be on the lookout for a better card deal. Study the offers that come in your mailbox. Search online. The Bankrate.com credit card search engine can help you locate the best deals from issuers from around the country.


-- Posted: Aug. 14, 2002




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