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Are Credit Card Interest Rates Usurious? A Court May Decide

Credit Card Interest Rates Under the Legal Microscope


Banks are clearly not fans of giving away money (try finding a CD that will give you even 1% per year!) but they sure do like to receive it.  Consumers frequently complain about high interest rate credit cards but they may be a thing of the past if the claimants in Petersen et al. v. Chase Card Funding, LLC et al., No. 1:19-cv-00741 have their way in court.  At the root of the claim is whether or not credit cards charge usurious interest rates that violate State laws.

A very brief history lesson on usury law

While each state has its own maximum interest rate and usury laws that local lenders have to abide by, credit cards issued by national banks are exempt from them. Usury laws, intended to maintain fair interest rates and prevent predatory consumer lending, can be ignored by large banks who hold their place of business and issue credit cards from within states where no maximum interest rates apply.


That little gem of a loophole is due to the 1978 Supreme Court ruling, Marquette National Bank of Minneapolis vs. First of Omaha Service Corp.  At the root of that case was whether or not First of Omaha Service Corp., headquartered in Nebraska with a maximum legal allowable interest rate of 18%, had the right to market to and issue credit cards to consumers in Minnesota where the maximum legal interest rate was only 12%.  The Supreme Court ruled that, yes, since state usury laws don’t apply to nationally chartered banks, First of Omaha was within their legal rights.


As a result, many banks began moving their headquarters to states with more favorable maximum interest rate laws.  Why charge 12% when you can charge 25%? States like Nevada, South Dakota and Delaware gained new employment and revenue.  Other states began dropping their usury laws to follow suit.  

The prognosis for Peterson vs. Chase

Fast forward to today and Peterson vs. Chase reopens the discussion but from a new angle.  While Peterson argues that Chase is charging him a usurious interest rate over the 16% that the State of New York allows, Chase is arguing that their status as a national bank preempts New York law.  Peterson’s counter?  That Chase resells their receivables as securities which should, in turn, be held to the New York usury law standard.


Unfortunately for Peterson and credit card holders everywhere, Magistrate Judge Jeremiah McCarthy has recommended dismissal of the case on the grounds that “the preemption analysis boils down to this: does the application of New York’s usury statutes to these defendants ‘prevent’ or ‘significantly interfere’ with Chase USA’s power to sell or assign the receivables generated by its credit card accounts?” Judge McCarthy affirms that “since applying New York’s usury statutes to defendants would prevent Chase USA’s ability to sell or assign the receivables from its credit card accounts, they are preempted.”


Oh well.  Unless Federal legislation one day decides to tackle a national usury rate, consumers will likely continue to struggle with high interest rate credit cards that would be considered predatory in their own state.

Curious about your state's usury laws?

Check out our Maximum Interest Rates and Usury Laws by State page where you can see what your state deems usurious. 

Additional Resources on Usury & Interest Rates