Just announced on Wednesday April 14th is the plan that Massachusetts state officials will be shutting down some of the nations largest banks in a protest over the soaring interest rates on credit cards. Although the process can take about 6 months, officials think that it will be significant enough to show an appropriate level of disapproval with the credit card industry. Among the banks that have lost the Massachusetts stamp of approval are Bank of America, Citi and Wells Fargo.
Massachusetts state law currently provides a cap of 18% on the interest rates and requested that the banks honor that cap for Massachusetts residents. When the banks refused to honor this interest rate cap is when state officials make the decision to cut off the banks that would not be cooperative in honoring this cap for state residents.
The Usury Law
In 1978 the Supreme Court issued a national usury law. This is a law that regulates the maximum interest rates that can be set on loans. This 1978 law issued that the interest rate caps would only apply to lenders that were based within a specific state. This resulted in many banks doing research and relocating to the states that had less strict interest rate laws, allowing them to have the flexibility to regulate their own rates as opposed to being confined by those of the state. It seems that with the recent outcry of the public opposition to interest rates, these strategies may no longer be quite as effective as it once was.
The Decision
The decision by Massachusetts is celebrated by many advocacy groups that have been vocal in their discontent with the credit card industry. The February 2010 credit card act has imposed strict regulations on the perimeters in which lenders can raise rates in an effort to protect consumers and regulate a historically unregulated industry. When Massachusetts announced this decision it gave other organizations such as local groups and religious groups the confidence to move their funds and investments from national to local and community banks.
Credit Card Companies Explain
According the new story done by the Washington post, several spokespeople from the credit card companies offered explanations for the reasons for the high interest rate charges. Efforts were made to contact all three banks for comment relating to the decision to pull funds by Massachusetts. Citi was the only one not available for comment.
The recession that put the nation in a financial hard spot resulted in the loss of jobs and the delinquency in loan paybacks. This in turn caused the credit card companies to suffer the losses associated with this situation. In an effort to recoup and regroup from severe loss the interest rates were hiked for those customers who were able to pay them. Although this does not seem fair, it is a reality for many of the credit card companies. The institution of the credit card act restricted the companies from adjusting their fees as they had in the past, which put them in a position to have to get creative to regain any losses they had incurred and find new ways to make money.
Wells Fargo and the Bank of American did express regret over the decision made in Massachusetts to pull their investments out of their banks. It is estimated that Massachusetts has 231 million invested in Bank of America, 3 million with Wells Fargo and 9 million with Citi.
The People Speak Out
The brave decision made by the Massachusetts officials is groundbreaking in that it set out to make a point that the people are beginning to take a stand against regulations that they feel are unfair and unreasonable. A rally that was organized on Capitol Hill where the announcement was made was met with overwhelming support by many advocacy groups. According to the Washington Post the crowd could be heard chanting supportive phrases such as: move those dollars and the time is up. These two small phrases obviously made a big impact.
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