Credit Card Companies Fuel South Dakota Surplus

Credit card companies have seen their profits stumble since the Obama administration pushed tougher, consumer-friendly lending rules through Congress in 2009. But new revenue figures in South Dakota offer some hope for the troubled sector, as well as for state officials who rely on it.

South Dakota collected $9.5 million in bank franchise taxes from credit card companies in August, the Argus Leader of Sioux Falls reports. State officials were expecting $0, considering the sector’s poor record of late as the economy struggled and new federal regulations took hold.

The surprise performance has fueled a small budget surplus for South Dakota in the current fiscal year, and it could be a promising sign for other states where major credit card firms are located, including Delaware and Virginia.

“What it suggests to us is there may be some return to profitability in the credit card market,” Jason Dilges, commissioner of the South Dakota Bureau of Finance and Management, tells the Argus Leader. But, he adds, “I would be cautious in saying that.”

South Dakota is home to several major credit card companies, including a subsidiary of Citibank. One of the main reasons is that the state, like several others, does not impose a cap on the interest rates that credit card banks can charge their customers. Former Governor Bill Janklow pushed for the no-cap policy in 1980, kicking off a race among states to lure credit card firms with attractive lending terms.

A 1978 Supreme Court opinion, Marquette National Bank v. First of Omaha Service Corporation, found that national credit card companies only must adhere to interest-rate caps in the states in which they are chartered, not in the states where their customers may reside. That has led national firms to move to states with the most favorable lending terms.