What Became of Consumer Usury?

I just got an email from one of my credit card issuers urging me to hurry and buy stuff because I’ll only have to pay 5.99% interest, but if I wait, I’ll have to pay the regular rate of 30.49%. I should probably pay more attention to such things, but I can’t remember the last time I carried a balance on a credit card. I only pay attention to paying the monthly statement in full before the due date. I remember when there were laws that capped the rate of interest on credit cards. I don’t remember the cap, seems like it was generally around 12.5%. These were state consumer protection laws, so they varied a bit from one state to another. There weren’t limits on commercial debt, it being assumed that business people were financially savvy and if they were greedy enough to charge, and stupid enough to pay, 30% interest on a loan, they should be free to do so. Consumers, on the other hand, needed protection from such greed. Who decided they didn’t? Isn’t it pretty obvious they still do?

At some point, banks discovered that South Dakota didn’t have such a law, and they began rushing to get charters there so they could issue their cards from that state and charge whatever interest they wanted. Ultimately, the other states saw how much banking business they were losing out on, and they did away with their laws.

There’s a concept under the law called “usury”. Basically, usury is charging exorbitant and unconscionable interest on debt. It’s sort of kind of supposed to not be legal. Kansas has long had a usury law. K.S.A. 16-201 sets interest on debt at 10%. However, it goes on to say that this is “when no other rate of interest is agreed upon”. If you want a credit card, you’ll agree to 30% interest. In the law we call this an “adhesion” contract. It’s a term for when one party agrees to a contract because they have no choice. Somehow or other, the governments, state and federal, decided that consumers shouldn’t be protected from having to agree to 30% interest because they have no choice. Well, okay, there is a choice. They could choose to try to get by in today’s economy without a credit card.

Some would argue that if a person can’t pay off their credit card every month, they shouldn’t have one. It’s not really a bad argument. Nevertheless, call me old-fashioned, but I’d call 30.49% unconscionable, even if one has a choice to avoid it by simply not getting a credit card. After I began writing this, I came across an article reporting that Bernie Sanders is proposing federal legislation called “The Loan Shark Prevention Act” to limit credit card interest to 15%. The article was dated May 16, 2019. Apparently, the bill went over like a lead balloon. I don’t remember ever hearing about it in the mainstream media. In case nobody has ever noticed, I stand in the conservative camp, which generally would put me at odds with Bernie. I think in this case he was onto something I could definitely get behind. I sure can’t get behind his push to forgive student loans, though.

I have an idea! Instead of forgiving student loans, how about limiting the interest they have to pay on their credit cards to something reasonable like, no more than 5% above prime or even Bernie’s 15%? Think of the difference that would make in their lives. Come to think of it, in all the news reporting about how tough it is on these “kids” to have to actually repay their student loans, nobody has reported anything about how much credit card debt they are also carrying and the interest rate they’re paying on that. Cut their credit card interest by 20% and maybe they’d be able to pay those student loans and not even have to give up Taylor Swift concerts, let alone give up buying a decent starter home.

End of an Era

A long-time (over 30 years) client and friend opined recently that the oil industry in Eastern Kansas, possibly Western Kansas, as well, is on its death bed. He sees no hope of recovery. A few hardy souls might eke out a modest living, but the industry will never see the kind of activity that drove it in the past. Even if the price of oil can recover, the industry cannot. I had arrived at the same opinion myself, and several clients have been wondering how to get out without having to accept a fire sale price for everything they worked so hard to build up all these years. I expect they’ve missed the boat.

I intend to continue this article. I don’t have the complete article in my head yet, though. Since I don’t post very many articles, I decided the best way to motivate me to write this one would be to go ahead and publish the start of it. Don’t want to appear to be somebody who can’t finish things, right?

Happy Birthday Magna Carta

No, Magna Carta is not the melted rock that comes out of volcanoes, but it is a bedrock of Western society and a major ingredient in the documents that formed the foundation of the United States of America. If you don’t know what Magna Carta is, or even if you do know what it is, then go here and read. This year is its 800th birthday. It wouldn’t be a bad time to also read the documents our founding fathers crafted to form this nation (you know – Declaration of Independence, Constitution, Bill of Rights), and to ponder whether, and how far, our government has strayed from the guarantees they vested in the citizens of this nation. These documents are supposed to protect us from a government that has become too powerful for our own good. That rumbling you’ve been hearing in the background is our Founding Fathers spinning in their graves wondering when we’re going to notice. Liberals, of course, would be quick to point out that it wasn’t the citizens who made the King sign Magna Carta for the benefit the lower and middle classes but, rather, the barons for the benefit of the rich folks.