The Secret History of the Credit Card Essay

616 Words Mar 11th, 2016 3 Pages
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 investopedia.com, “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
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Citibank brought in hundreds of white collar jobs. Citibank is now the largest employer in the entire state. Citibank turned the credit card business, which before was losing money, into an immensely profitable business. As stated in the frontline article, “the unlikely state of South Dakota became the place where America's credit card industry first began to really take off”.

5. In the Citibank example, how did Citi use existing laws to alter its business mode?

The usury laws in New York were putting Citibank under. The bank lost over one million dollars on its audacious foray from credit cards because the inflation rate went beyond the amount of interest they were allowed to charge customers. It did not look good for Citibank so they needed to make quick changes. Since the usury laws in New York were what was holding them back they went to South Dakota, where there were no usury laws, hoping for a new start. The change in location was everything they needed to get back on track and make profit off the credit card business. 6. What was the underlying basis of the Marquette Bank decision?

The Marquette Bank decision was a U.S. Supreme Court decision ruling that a bank could export its interest rate to another state. This meant that a bank could move its headquarters to a state with no usury laws and offer loans with high interest rates to other states. This is what really sparked Cikitibank’s

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