Will Congress deliver caps on credit card rates?

As the financial reform debate winds its way through Congress, one recently-proposed amendment would offer relief from the many Americans who feel trapped under their debt because of the high interest rates on their credit cards. Senator Sheldon Whitehouse (D-R.I.) created an amendment that would give states the authority to set caps on the maximum interest rate credit card companies could charge.

We here at WalletPop hear from many readers who have interest rates in the neighborhood of 30% or more, so we're betting you're on board with this idea. Consumer advocacy groups are, too. "This restores states' ability to protect their citizens from rate gouging," Jean Ann Fox, director of financial services for the Consumer Federation of America, tells WalletPop.

David Arkush, director of the Congress Watch division for watchdog organization Public Citizen, offers WalletPop readers a short history lesson that helps explain the high rates: Back in 1978, the Supreme Court decided that a bank would be within the law if it followed the regulations on interest rates in the state where it was headquartered, not necessarily the state or states in which its customers resided. Certain states, such as Delaware and South Dakota, seized the opportunity to induce banks to set up shop there by enacting very high rate caps or none at all. As a result, credit card issuers migrated their operations to these business-friendly states and proceeded to slap sky's-the-limit interest rates on consumers. (This is also why the bulk of the mail you receive from credit card companies comes from just a handful of states.)