DerryNews.com, Derry, New Hampshire

May 9, 2012

High credit card interest rates are legal

About the Law
Andrew Myers

How can credit card companies charge 30 percent interest? Didn't there used to be laws limiting what interest rates companies could charge? This is outrageous.

States can and do have "usury laws" limiting the amount of interest that can be charged by lenders. The problem for consumers is a 1978 U.S. Supreme Court case invoking federal pre-emption in this area.

In the case of Marquette v. First Omaha Service Corp., the Supreme Court held that a national bank may charge the highest interest rate allowed in its home state, nationally. So, credit card companies can charge customers living anywhere in the U.S. the interest rate in whatever state the lending institution selects as its domicile.

Following that decision, huge New York-based Citibank relocated its base of operations to South Dakota, which had more lenient interest rate caps. Other major lenders with credit card lending as a major part of their business moved to other high-interest rate friendly states like Georgia and Nevada.

All interest rates, late fees or other costs and charges must be included in a cardholder agreement. If so, then the national bank may export the higher interest provided for in their home state everywhere else.

Those new to the jaws of credit card lending practices are often shocked. But, there's nothing illegal about companies charging 20 percent to 30 percent interest. The only specific requirement under federal and state law mandates full disclosure of the interest rate and all fees and charges.

Speaking of outrageous, and changing the subject only slightly, one of the most frequently threatened, but least often actually successful, legal claims is for "emotional distress."

Nearly everyone faces emotional distress at one level or another, whether it's facing a pile of bills or driving in traffic with demons behind the wheel. But, a legal claim for intentional infliction of emotional distress requires an extremely high standard of proof of "extreme and outrageous" conduct.

A federal lawsuit was brought after Wells Fargo N.A. was alleged to have foreclosed on a home, after repeatedly assuring the Massachusetts homeowners that the foreclosure would be held off while a loan modification application was pending.

The U.S. District Court held no emotional distress. To sustain a legal claim for intentional infliction of emotional distress the court pointed out that more than negligence, even more than criminal conduct, is required.

Such claims, the court pointed out, require a showing of extreme outrageous conduct "beyond all bounds of decency" or "utterly intolerable in a civilized community."

In Akar v. Fannie Mae, the court opined that the allegations might support claims for bad faith, misrepresentation, or unfair and deceptive business practices. But, no emotional distress. (U.S. District Court, Boston, Feb. 8, 2012.)

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Andrew Myers of Derry has law offices in Derry and North Andover. He is a member of the American Association for Justice and the New Hampshire Trial Lawyers Association. Send questions to andrew@attorney-myers.com.