About New York – These Rates Would Shock a Loan Shark – NYTimes.com

These Rates Would Shock a Loan Shark

By JIM DWYER

Just in time for Thanksgiving last year, a credit card offer arrived in the mail. The (introductory) rate was 2 percent. Malcolm S. jumped. A student at Medgar Evers College in Brooklyn, Malcolm was looking after the affairs of a grandfather in a nursing home.

Soon, he had run up $2,000 in charges. Even sooner, the 2 percent rate vanished.

On Tuesday morning, he was on the 11th floor of a courthouse in Brooklyn, facing a lawyer for the credit card company, a judge and a debt balance that had metastasized to $4,300 with interest and fees.

The interest rate was around 29 percent. The judge, Noach Dear, held his head. “John Gotti must be looking down and smiling,” Judge Dear said. “Even he wouldn’t have the chutzpah to charge that interest.”

The lawyer for the bank, JPMorgan Chase, said he himself had been charged 29 percent interest on a credit card. “And I made the payments,” the lawyer said.

After the judge said he would hold a trial in January if the case wasn’t settled, Malcolm, 21, walked to the elevator. “It was mostly for Christmas and my grandfather,” he said, asking that his full name not be used. “I was immature. I’ve learned my lesson.”

Room 1101 at 141 Livingston Street is full of lessons. It is the consumer debt court for Brooklyn, the peephole through which you can see the ocean. Five days a week, by 9:30 in the morning, every bench in the room is packed with people who owe. A few lawyers, their arms wrapped around folders, stand in the aisles to represent the banks that issued the cards, or the collection agencies that have purchased the debts, usually for 10 cents on the dollar. Capital One. Citibank. Worldwide Asset. Chase. Arrow Financial. Throughout Tuesday morning, Judge Dear inquired about the interest on unpaid balances, and the 29 percent cited in the Malcolm S case was typical. Once, such numbers were unheard of.

Between 1978 and 1980, the banking industry was effectively liberated from limits on the interest that could be charged on loans, including credit cards. A Supreme Court decision and federal legislation overrode most state laws that defined and prohibited usury. A new world of payday loans, tax refund loans, subprime mortgages and teaser-rate credit cards was born, just as real hourly wages, adjusted for inflation, were stagnating. It took three decades for the country to borrow and lend its way into a global financial collapse.

via About New York – These Rates Would Shock a Loan Shark – NYTimes.com.