History provides valuable CC lesson

President Trump wants to cap credit card interest rates at 10 percent. While this populist idea is meant to help consumers and the economy, students of history know such a restriction would be terrible for consumers and seriously harm the economy..The credit card business, essentially born in the 1960s, grew as middle-income people suddenly gained access to unsecured credit. Initially, state usury laws limited the growth of credit cards, but the 1978 Supreme Court Marquette decision clarified that credit card issuers could charge interest allowed by the laws of their home state regardless of where their customers lived.The decision came at a good time because as interest rates went through the roof in the late 1970s and early 1980s, credit card profitability plummeted. Citibank, one of the largest credit card issuers in the country at the time, lost money on every card it issued because the bank was based in New York where state law capped rates lower than the cost of funds. After the Marquette decision, Citi execs determined they needed to relocate their card business to a state with a better rate environment. Missouri seemed the logical new home, although Show-Me state officials resisted, so Citi was stymied.But in 1980, the South Dakota state legislature, taking a cue from Thomas Reardon, founder and chairman of the Western Bank in Sioux Falls, voted to exempt commercial banks from the state’s usury laws. Citi execs heard about it and reached out to Gov. Bill Janklow, who invited the bank to the state. Within a year, the bank relocated, as New York elected officials remained non-plussed by the bank’s concerns.The result was two-fold. First, Citi brought thousands of jobs to Sioux Falls, which helped to transition the city from its dependence upon a struggling ag industry to one based on financial services and ancillary businesses. Second, and perhaps even more important, Citi turned its credit card business around, fueling a nationwide consumer economy. Other credit card issuers blossomed as more states copied South Dakota’s example. None of this would have been possible had laws capped rates so low that no card issuer could afford to offer them.Credit cards make credit available to millions of people who might not otherwise have access to it, especially in the small business arena. So let’s not make a foolish mistake; Mr. President, let’s leave credit card interest rates to the market.