Pretending to be a Lawyer by the Light of a Full Moon

There's a full moon today in a few hours, and if you doubt that a full moon has psychological effects, hold that thought and try to follow this logic.

1. Credit card lenders commonly charge interest in excess of 30% per year.
2. Kentucky law, KRS §286.3-740, authorizes banks to charge no more than 21% interest per year (1.75% per month x 12) on revolving credit plans.
3. Most National Banks are organized in states without interest rate limits (Nevada, Delaware, etc.).
4. Federal law preempts state law and federal law allows National Banks to operate nationally under the rules of the bank's home state.
5. Therefore, National Banks doing business in Kentucky are not limited by Kentucky laws limiting the amount of interest that can be charged for credit card debt.
6. When a credit card debtor defaults, the unpaid balance is accelerated and the debt is sold to a third party, it stops being a revolving credit plan, by definition, and it stops being a debt owned by a National Bank enjoying the supremacy of federal law.
7. In the hands of a junk debt collector, the debt is just an ordinary unsecured debt.
8. In Kentucky, ordinary unsecured debts which are not owned by banks or National banks are subject to Kentucky's general usury statute, KRS §360.010, which limits interest to 8% per year.
9. If the junk debt collector attempts "taking, receiving, reserving, or charging a rate of interest greater than is allowed by KRS 360.010," (8%) for any period after assignment of the debt from the National Bank, the debt collector runs afoul KRS §360.020 and the civil forfeiture provisions therein.

I've gone down this road before, See: Washington Mutual (WaMu) credit cards

  

Rage Against Junk Debt Collectors

I awoke this morning in a feisty mood with the intent to guzzle coffee and to conceive a monkey wrench. Here is the outline for my monkey wrench: Throw with caution.

1. Credit card companies avoid state usury laws by operating as National Banks or other federally chartered institutions.
2. Federal law preempts state law for National Banks, etc. Thus, state usury laws do not apply to most credit card transactions.
3. Upon a credit card debtor's default, these debts are frequently sold to junk debt collectors for a fraction of the amount owed.
4. Upon the assignment of the debt from a National Bank, etc., to a junk debt collector that is not a National Bank, state usury laws become applicable to the debt in the hands of the junk debt collector.
5. In the event a junk debt collector attempts to claim prejudgment interest at the prior credit card interest rate, which sometimes happens, the mere attempt may result in the forfeiture of all interest on the debt, and other civil penalties.
6. KRS § 360.020 provides, in part, "The taking, receiving, reserving, or charging a rate of interest greater than is allowed by KRS 360.010, when knowingly done, shall be deemed a forfeiture of the entire interest which the note, bill, or other evidence of debt carries with it . . . . "

It's something to think about on a cold Saturday morning.