Is There a Limit on Interest a Credit Company Can Charge

In case you were wondering, no there is no federal limit on the interest rate a credit card company can charge.

Have you ever wondered why the return address on your credit card bill is in a State like South Dakota or Deleware. Do your credit card companies know something that you don’t? Is South Dakota just a rockin’ place to live, more so than Dallas, TX or Miami, FL?

Maybe, but the real reason is that States like Deleware and South Dakota have either weak or no "usury laws" which means that there is no cap on interest rates that the credit card companies can charge.

The federal government once had a national cap on the amount of interest that could be charged on a loan. But after the Great Depression, it was repealed and some states put no usury laws in place. That’s why Providian is in NH (no cap), Chase, MBNA, Discover are in DE (no cap), BofA loves Arizona (no cap), American Express digs on Utah (no cap) and yes Citibank swears by South Dakota (no cap).

These clusters were largely formed by a 1978 Supreme Court decision that determined national banks only have to obey the interest-rate caps of the state that they are chartered in, not the state where the bank’s customer lives.

It may sound outrageous but that is why some credit card companies can charge as much as 60% interest and get a way with it. Maybe it’s time to start looking at a National Cap once again.