The Secret History of the Credit Card

In: Historical Events

Submitted By agurllauren
Words 629
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The Secret History of the Credit Card

1. What is the main purpose of a usury law? Be specific.
The purpose of usury laws was to regulate the maximum interest rates of loans. This law was created to protect borrowers from excessively high interest rates. It insured that lenders could not put the borrower in a situation where they were not able to fully pay off their debt. However, as said on, “In the United States, individual states are responsible for setting their own usury laws.” 2. Why did South Dakota decide to eliminate its cap on interest rates?
South Dakota use to have very strict laws on the amount a lender could charge a borrower. Interest rate charges were highly regulated and because of this banks did not want to loan out any money. For example, an illustration from the article said “you could charge 9 percent, but money cost 11 percent”, so they would not issue a loan. This lead to South Dakota removing there cap on interest rates (usury laws). 3. Why were the usury laws strangling the banking industry? Be specific.
Usury Laws were causing banks to be broke. As stated in the frontline video, “If you are lending money at 12 percent and paying 20 percent, you don't have to be Einstein to realize you're out of business.” Banks were losing billions in the credit card business. The rate of inflation surpassed the amount of interest banks were allowed to charge credit card borrowers. The usury laws were literally strangling the banking industry. Banks were losing too much money and if there was no negotiation on usury limits then banks felt they needed to go elsewhere. 4. Why did Citibank move to South Dakota?
Citibank felt there was no other choice but to leave New York, as for the New York usury laws were putting them under. They looked into which states had high amounts or no usury laws at all and came up…...

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