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Credit Card Interest Rates Go to Court

Credit card interest rates usually enjoy wide protection from usury laws.

Under a United States Supreme Court decision (Marquette v. First Omaha Service Corp. 439 U.S. 2990 (1978), courts have recognized the rule that banks organized in states that allow very high limits (or no limit) on interest rates can charge the same rates in any other state as well. This is the reason many banks that issue national credit cards are based in Delaware or South Dakota.

Rosemary DeCristoforo, though, a Beverly Mass. resident, was fortunate enough to find a lawyer who thinks “outside the box.”

Ms. DeCristoforo was a customer of Citibank and became late with her payments. For this reason, Citibank increased her interest rate to slightly over 54%.

When Citibank sued her to recover the money she allegedly owed them, she counter attacked, claiming that the interest rate she was charged was not usurious (as a matter of law) but unconscionable.

Judge Robert Cornetta of Essex Superior Court in Salem issued an opinion quite sympathetic to her, stating that interest rate charges above eighteen percent are unconscionable and so outrageous as to warrant holding them unenforceable.

Judge Cornetta’s decision included some unflattering observations of the consumer credit industry.

In 2003 there were 144 million credit card holders in the U.S. While the number of cardholders has since 1990 risen by 350%, income has risen only by 188%, the judge observed, also noting that consumers are using credit cards for everyday necessities such as food and utilities. In November 2007 total credit card debt has reached an all time high of $790.2 billion. Judge Cornetta observed that the “general public was drowning in credit card debt” and that “unregulated interest rates and hidden fees … make it impossible for consumers to get out from under these debts, adversely impacting upon the ability of consumers to ever emerge from an endless interest and fees induced spiral.”

Regrettably, Judge Cornetta’s opinion is not binding on other judges. However, it can be brought to the attention of other judges and used in argument.

Citibank is not alone in charging very high interest rates. First Premier Bank, based in Sioux Falls, South Dakota issued a credit card carrying an interest rate designated for folks with damaged credit, at 79.9 percent, again, demonstrating that the industry has little empathy for the poor, unemployed or disabled who often are forced into these rates if they want a credit card.
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David Grossack is a lawyer, writer and activist residing in Hull, Massachusetts. He practices law in Newton. Visit his website at www.grossack.com. He is currently working on a self help book for persons sued by credit card companies.

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