What do Bank of America, JPMorgan Chase and Barclays all have in common? Each of those companies have Wilmington, DE as their credit card headquarters. Wilmington, Delaware probably wouldn’t jump to most people’s minds when discussing national credit card headquarters. I, for one, assumed they would be located in New York City. After all, NYC is the financial capital of the U.S., so at first glance NYC would seem to be the most logical choice. But as it turns out, Delaware is the most logical choice, for the banks at least.
In 1978, the Supreme Court ruled in Marquette National Bank vs. First of Omaha Service Corp that the state of Minnesota could not enforce its usury laws against a credit card company that was not based in Minnesota. That means interest rates are set according to the laws established in the state that the credit card company is chartered. Since every state has its own set of usury regulations, a credit card company could exploit this by headquartering itself in a state with favorable laws. And Delaware’s current usury laws are very favorable to credit card companies.
The Obama administration attempted to curtail the variance of interest rate limits in the Credit Card Consumer’s Bill of Rights by submitting two proposals that would impose interest rate caps. The bill, signed into law in May and which will start to be enforced this coming February, however, did not contain those amendments. The credit card companies lobbied hard to get those proposals removed, but were unable to kill the bill as a whole. Despite the inability to get interest rate caps enacted into law, the CCC Bill of Rights does however contain many changes that will affect how credit card companies are able to change the terms of account agreement with the consumer.
The new law will stipulate that credit card companies must give 45 days notice before changing the interest rate, as well as a written explanation for why the change is taking place. Additionally, consumers would have to be 60 days late on payments before they would see an interest rate hike on their existing balance. If the customer is able to make on-time minimum payments for six consecutive months after the rate increase, then the credit card company would be compelled to reduce the interest rate back to the pre-increase rate.
Credit card companies were given 9 months to enact the necessary internal changes to make this happen – hence the February start date. Earlier versions of the bill had much shorter timelines, but lenders were able to successfully lobby for the 9 month time frame.
As their willingness to establish their credit divisions in Wilmington, DE suggest, lenders are willing to undertake great effort to find and exploit loopholes in the laws to increase their profits. The Credit Card Consumer’s Bill of Rights attempts to close many of the most commonly used loopholes. It’ll be interesting to see how the credit card companies respond, and how consumers are ultimately affected.
-Michael
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