Page 15 - Book1E

According to authors Elizabeth Warren and Amelia Warren Tyagi in their book, The Two-Income Trap, published by Basic Books, up until the late 1970s it had been left to the individual states to determine the amount of interest that could be charged for consumer loans. State governments wanted to be able to protect their citizens from “back- alley loan sharks” and aggressive lenders who would cost families their homes.
“We are writing this letter to express our thanks to you. It was a little over a year ago that we made an appointment with your office. We walked in with little hope for our financial future and piled our concerns on your desk.
In the period of one year, we have made great strides of improvement in our financial standings with the help of this foundation.”
—R.J., Austin, Texas
But, say Warren and Tyagi, a 1978 Supreme Court opinion interpret- ing some hard-to-understand language in a federal law opened the door for banks to “export” interest rates from one state to another. “This meant that a bank with lending operations in South Dakota— where the interest ceiling was 24%, at a time when the rates in most states were capped at 12 to 18%—would have a distinct advantage. A South Dakota bank could now issue loans at 24% interest to a family living in New York (where rates on most loans were capped at 12%), without worrying about the corporate officers ending up in a New York prison next to loan sharks who collected by breaking people’s fingers until they paid. Under the new law of the land, South Dakota banks could collect their profits from New York families, and there wasn’t a thing the New York legal system could do about it.”
A Brief History 7