High Interest, Traps, and Why It Feels Like Usury

Credit card companies often promote themselves as gateways to financial freedom and rewards, but many of their practices leave consumers trapped in cycles of debt. With skyrocketing interest rates and aggressive marketing strategies, these companies have turned what should be a tool for financial convenience into a source of profit at the expense of consumers. Let’s break down how this happens and why it’s time for reform.

High Interest Rates: A Legalized Debt Trap

The average credit card interest rate hovers around 21.5%, with many store-branded cards charging even more—some exceeding 30% APR. This makes them among the most expensive forms of borrowing available. Let’s put this into perspective:

• If you carry a $1,000 balance on a card with a 30% interest rate and make only the minimum payment each month, it could take over four years to pay off, and you’ll spend nearly $800 on interest alone.
• Contrast this with personal loans or mortgages, which often come with single-digit interest rates for the most creditworthy borrowers.

The high rates are effectively legalized by a loophole in usury laws. Thanks to a 1978 Supreme Court ruling (Marquette National Bank v. First of Omaha), banks can charge the highest interest rates allowed in the states where they are headquartered. That’s why credit card issuers flock to states like Delaware and South Dakota, which have no caps on interest rates.

Marketing Overload: Flashy Rewards, Hidden Costs

Credit card companies don’t just rely on interest—they also spend billions luring customers with marketing campaigns. The promise? Rewards points, discounts, and cashback offers that seem too good to pass up.

The Numbers Behind the Ads

The credit card industry is one of the largest advertisers in the U.S., spending more on ads than major corporations like Walmart or even sports teams. For example:

• Capital One spent over $650 million in advertising in 2022 alone.
• The entire payments and credit industry was projected to spend $4.49 billion on digital ads in 2024.

This aggressive marketing creates the illusion that using credit cards is a savvy financial move. But dig deeper, and you’ll find traps waiting to ensnare consumers.

Traps Set by Credit Card Companies

Credit cards often target consumers through carefully crafted incentives. While the initial offers sound appealing, they are designed to maximize the company’s profits at your expense.

Example 1: Retail Credit Cards

Take Kohl’s as an example. Kohl’s offers perks like “Kohl’s Cash” and upfront discounts when you sign up for their store card. At first glance, it looks like you’re saving money. But what’s the real cost?

• Interest Rates: Many store cards, including Kohl’s, charge rates as high as 30% APR.
• Hidden Catch: If you don’t pay off your balance immediately, that “discount” disappears under the weight of interest charges. In many cases, consumers end up paying more for their purchases than if they had used cash or a lower-interest card.

Example 2: Deferred Interest Plans

Some cards advertise “0% interest for 12 months” on large purchases. Sounds great, right? But if you fail to pay off the entire balance within that period, they retroactively charge interest on the original amount from the purchase date—at exorbitant rates.

Example 3: Minimum Payment Mirage

The minimum payment is one of the industry’s sneakiest traps. By setting these payments low, credit card companies ensure that borrowers take years to pay off their balances, raking in more interest over time.

Why This Isn’t Considered Usury

If you’re wondering how these sky-high rates and practices aren’t considered usury (exorbitant and illegal interest), the answer lies in legal loopholes and weak consumer protections.

1. State Laws Override: States like South Dakota and Delaware don’t cap interest rates, allowing credit card issuers to operate freely.
2. Contractual Agreements: By agreeing to the terms of a credit card, consumers waive certain protections that would otherwise limit interest rates.
3. Regulatory Silence: Despite consumer advocacy groups pushing for reform, federal regulators have not imposed stricter rules to curb these practices.

Is There a Way Out?

Reforming the credit card industry isn’t simple, but there are steps you can take to protect yourself:

1. Read the Fine Print: Always check the APR and terms before signing up for a card.
2. Avoid Store Cards: Unless you can pay off the balance immediately, the rewards rarely outweigh the costs.
3. Pay More Than the Minimum: Avoid falling into the minimum payment trap. Pay as much as you can each month to minimize interest.
4. Use Debit or Cash: For regular purchases, using cash or debit can keep you out of the credit trap entirely.
5. Advocate for Change: Support legislation that caps credit card interest rates and eliminates retroactive interest charges.