The Deal That Rewired American Credit
Near Sioux Falls, South Dakota
In nineteen seventy-eight, the United States Supreme Court ruled unanimously in Marquette National Bank versus First of Omaha Service Corporation that the usury laws of a borrower's home state could not be enforced against a nationally chartered bank operating from another state. The interest rate that mattered was the one set by the state where the bank was located, not the state where the cardholder lived.
For Citibank, squeezed between the Federal Reserve's high interest rates and New York State's cap on what it could charge cardholders, the ruling was a door left open. The bank was losing money on every credit card transaction. It needed to charge higher rates, but New York law would not allow it.
Governor William Janklow of South Dakota had a different problem. The state's economy was depressed in the late nineteen seventies, and Janklow was prepared to move fast to bring in employers. When Citibank came to him with a proposal, the terms were straightforward: abolish South Dakota's interest-rate cap, and the bank would move its credit card operations to Sioux Falls with at least four hundred jobs. Janklow had the enabling legislation passed in a single day in nineteen eighty-one. The bill was essentially drafted by the bank.
Citibank began operations in Sioux Falls on September nineteenth, nineteen eighty-one. Within two decades the operation had grown to thirty-two hundred workers in Sioux Falls and had drawn fifteen to twenty additional financial services companies to the state.
The broader consequence has been argued ever since. With no state usury cap, and with the Marquette ruling allowing Citibank to export South Dakota's legal framework to cardholders in all fifty states, the ceiling on consumer credit card interest rates effectively disappeared from American law. The credit card debt carried by American households rose into the trillions. Whether this was liberation, credit for people who previously had none, or predation depends on who you ask and when.
The credit card industry remains one of Sioux Falls's largest employers. The deal Janklow made in a single day is still running.
