Minnesota loves to tell itself it’s the state that looks out for the little guy. On credit card debt, that’s a nice story. The paper trail tells a different one.
The modern credit card rate exists because of a lawsuit Minnesota lost. The arbitration outfit that turned card debt into rubber-stamp awards in the 2000s kept its headquarters in St. Louis Park. The trick that lets a collector sue you without ever filing the case in a courthouse got a hard look from the Minnesota Supreme Court’s own task force in 2011 and walked out alive. And today a credit card company with a judgment can take up to a quarter of a Minnesotan’s paycheck, every pay period. In Texas it can’t take a dime.
None of it happened in a back room. It’s all sitting in the public record. I went and read it.
1978: Minnesota lost the case that built the national credit card
Back in the 1970s, Minnesota held bank credit cards to one percent a month. The Supreme Court said it in one line: “Minnesota law, however, fixes the permissible annual interest on such accounts at 12%.” Marquette National Bank of Minneapolis v. First of Omaha Service Corp., 439 U.S. 299, 302 (1978). To make that low rate livable for its banks, Minnesota let them tack on an annual fee of up to $15. Id. at 302–03 & n.5.
Then the First National Bank of Omaha came calling, signing up Minnesotans for its BankAmericard. Nebraska let it charge 18 percent a year on the first $999.99 of a balance. Id. at 302. Marquette National, a Minneapolis bank, cried foul. It said it was losing customers because it had to charge a $10 annual fee just to live under Minnesota’s cap, and it sued in Hennepin County to keep the Omaha bank from soliciting here. Id. at 304. Minnesota’s Attorney General jumped in on Marquette’s side. Id. at 306.
Minnesota lost every round that mattered. Its own Supreme Court ruled for the Nebraska bank. Id. at 301, 306–07. Then, on December 18, 1978, a unanimous United States Supreme Court affirmed. Id. at 300, 319. Under the National Bank Act, 12 U.S.C. § 85, a national bank may charge “on any loan” the rate allowed by the state where the bank is “located”, and the Omaha bank was located in Omaha no matter where its cardholders lived. Id. at 308, 313. The Court even saw the damage coming, and handed it to Congress:
This impairment may in fact be accentuated by the ease with which interstate credit is available by mail through the use of modern credit cards. But the protection of state usury laws is an issue of legislative policy, and any plea to alter § 85 to further that end is better addressed to the wisdom of Congress than to the judgment of this Court.
— Marquette, 439 U.S. at 318–19
Translation: a bank gets to pick its state, and the state it picks sets your rate. Where you live doesn’t enter into it.
The banks didn’t waste any time. Here’s the Federal Reserve Bank of Chicago, writing in 1988: “In February 1980, South Dakota removed all usury ceilings for credit card loans and other types of consumer lending.” In March, South Dakota rolled out the welcome mat: out-of-state bank holding companies could open a bank there and move their card operations in. Citicorp was first through the door. Its new bank, Citibank (South Dakota), N.A., in Sioux Falls, was set up to do the nationwide card lending Citicorp’s New York banks had been doing, and by 1988 it was the largest commercial bank in South Dakota, with 3,462 employees. Delaware got in line with its Financial Center Development Act of 1981. Eleanor Erdevig, “Small States Teach a Big Banking Lesson”, Chicago Fed Letter No. 10 (June 1988).
Then there’s a line in that Fed letter I didn’t see coming: “two large bank holding companies with headquarters in Minnesota expanded consumer loans and employment at existing subsidiary banks in South Dakota.” Id. Minnesota’s home-grown banks went across the border too.
Here’s the part that made me laugh, the way you laugh at a parking ticket. The Minnesota statute the Supreme Court read in 1978, § 48.185, is still on the books. Today it caps Minnesota’s own bank credit cards at “the equivalent of an annual percentage rate of 18 percent”. Minn. Stat. § 48.185, subd. 3. And subdivision 6 still says the section applies to any bank that systematically solicits Minnesotans, and that a card agreement clause specifying “that the law of another state shall apply” is invalid. § 48.185, subd. 6. As applied to a national bank located somewhere else, that sentence is a scarecrow, and Marquette is why it can’t do what it says. Forty-seven years later, the Legislature’s still printing it.
If you’re wondering about Minnesota’s general usury cap, and why it almost never bites, I covered it at /news/minnesota-usury-business-loan-interest/.
2026: Even the President says you’re being “ripped off”
Fast-forward to this year. On January 9, 2026, the President posted this on Truth Social:
Please be informed that we will no longer let the American Public be “ripped off” by Credit Card Companies that are charging Interest Rates of 20 to 30%, and even more, … Effective January 20, 2026, I, as President of the United States, am calling for a one year cap on Credit Card Interest Rates of 10%.
That’s his post, at truthsocial.com/@realDonaldTrump/115868132990949589. Business Insider ran both sentences word for word, and CBS News ran most of the first. His word was “ripped off”. He’d pitched a cap on the campaign trail back in September 2024, too.
But a post isn’t a law. The bill that would actually do it is S. 381, the “10 Percent Credit Card Interest Rate Cap Act”, introduced in the Senate on February 4, 2025, by Senator Sanders for himself and Senator Hawley, and sent to the Banking Committee. It would amend the Truth in Lending Act so a card’s annual percentage rate “may not exceed 10 percentage points, inclusive of all finance charges”, and it would sunset on January 1, 2031. S. 381, 119th Cong. §§ 2(a), 2(c) (2025). As I write this, the only version of S. 381 on the government’s official bill-text site is still the one introduced that day.
So the President of the United States and a bill with sponsors from opposite ends of the Senate agree card rates are a problem. Fine. But a rate cap is a fight over what the card company charges you. It does nothing about what the card company can take from you after it sues. That’s a different fight, and Minnesota gets to decide that one all by itself.
The fight Minnesota controls, and keeps losing
Federal law puts a ceiling on wage garnishment: the lesser of “25 per centum” of a week’s disposable earnings or the amount above 30 times the federal minimum wage. 15 U.S.C. § 1673(a). And then Congress said that ceiling doesn’t override state laws “prohibiting garnishments or providing for more limited garnishment than are allowed under this subchapter”. 15 U.S.C. § 1677(1).
Read that again. Congress wrote it into federal law: the ceiling leaves every state free to ban wage garnishment for ordinary debts. Texas has done exactly that, in its constitution, since 1876. Pennsylvania and South Carolina have their own versions. I laid out each of those statutes, text and all, in the first piece of this series: /news/minnesota-vs-texas-wage-garnishment-571-922/.
Minnesota hasn’t. A credit card creditor with a Minnesota judgment can still garnish up to 25 percent of a worker’s disposable earnings. Minn. Stat. § 571.922(a)(1). The Legislature added income tiers in 2024, so lower earners lose 10 or 15 percent instead of 25. The catch: the tiers only apply in lawsuits commenced on or after the date they took effect in 2025. 2024 Minn. Laws ch. 114, art. 3, § 101; 2025 Minn. Laws ch. 18, § 21. The hub piece runs the arithmetic on a real paycheck. Short version: on $1,000 a week take-home, the card company gets $250 a week. In Texas it gets zero.
Credit where it’s due, though. Minnesota isn’t worse on everything. Exempt wages stay protected for 20 days after they hit your bank account, and Texas doesn’t do that; I covered that round at /news/minnesota-vs-texas-bank-account-garnishment-exempt-funds-571-912/. Minnesota also bars your employer from firing you over a garnishment. Minn. Stat. § 571.927, subd. 1. Those protections are real.
And the 2024 package did some real good on medical debt. A medical-debt collector “is prohibited from reporting medical debt to a consumer reporting agency.” Minn. Stat. § 332C.03(a). The rest of that law is at /news/minnesota-medical-debt-fairness-act/. So I went looking for a ban on garnishing wages for medical debt, in chapter 332C, chapter 571, and § 550.37, and it isn’t there. A hospital with a judgment can still garnish. So can the card company.
So has anybody in St. Paul even proposed going full Texas? The series hub searched every House and Senate file from 2019 through 2026 that touches the garnishment sections and found none that would bar wage garnishment for consumer debt. Not one. And what passed in 2024 was the stingiest of three garnishment proposals on the table that year. That’s a Legislature that talks like a consumer advocate and votes like a lender’s lobbyist.
The arbitration machine was built in St. Louis Park
You’ll hear people remember it as some national arbitration outfit the credit card companies set up. It was the National Arbitration Forum, and the real story’s stranger than that.
According to the complaint Minnesota’s Attorney General filed against it, the Forum was a for-profit Minnesota corporation at 6465 Wayzata Boulevard, St. Louis Park. State of Minnesota v. National Arbitration Forum, Inc., Complaint ¶¶ 7–9 (Minn. Dist. Ct. Hennepin Cnty., filed July 14, 2009). By that complaint’s account, that suburban company was “the nation’s largest provider of consumer debt collection arbitrations.” Id. ¶ 14.
The card companies didn’t build it. According to Public Citizen’s 2007 report, “NAF was founded in 1986 as a subsidiary of another company, Equilaw Inc., which subsequently went bankrupt.” The report quotes a consumer advocate’s 2000 testimony on Capitol Hill that the Forum “was established as a mechanism for resolving ITT Consumer Financial Services’ claims against its consumer borrowers across the country by default judgments in Minnesota.” Public Citizen, The Arbitration Trap: How Credit Card Companies Ensnare Consumers 21 (Sept. 2007). So, by that account, it started life serving one consumer lender. The card companies came later. And according to the Attorney General, the Forum went out and got them.
Here’s how the complaint opens:
The Forum represents to the public, the courts, and consumers that it is independent, operates like an impartial court system, and is not affiliated with any party.
— Complaint ¶ 1
And here’s what the Attorney General said was behind the curtain. The Forum worked “behind the scenes—against the interests of consumers—to convince creditors to place mandatory pre-dispute arbitration clauses in their customer agreements and to appoint the Forum as the arbitrator of any disputes that may arise in the future.” Id. ¶ 1. A New York hedge fund group formed private equity funds “under the name ‘Agora’ (meaning ‘Forum’ in Greek),” which “invested $42 million in the National Arbitration Forum and obtained governance rights in it”, while the same group formed and funded a collection agency that acquired the operations of one of the country’s largest collection law firms. Id. ¶ 2. Then the number: “In 2006, the Forum processed 214,000 consumer debt collection arbitration claims, of which 125,000—or nearly 60 percent—were filed by the law firms listed above.” Id. ¶ 3.
They named the investment funds after the arbitration company. In Greek. You can’t make this stuff up, and you don’t have to.
Those are allegations. The Forum never admitted them. What it did was quit. Eight days after the complaint, the Forum’s chief operating officer sat in front of a House subcommittee in Washington and said: “we have withdrawn the National Arbitration Forum from handling consumer arbitrations pursuant to an agreement with the attorney general.” Arbitration or Arbitrary: The Misuse of Mandatory Arbitration to Collect Consumer Debts: Hearing Before the Subcomm. on Domestic Policy of the H. Comm. on Oversight and Government Reform, 111th Cong. 116 (July 22, 2009) (Serial No. 111-125). The hearing record dates the settlement July 17, 2009, three days after the suit was filed, and the subcommittee chairman noted that “The settlement does not admit wrongdoing”. Id. at 2, 32.
That same record has the subcommittee’s own findings. Its staff compared “228 nearly identical NAF consumer debt collections claims” and found “three arbitrators granted awards in favor of the debt collection firm nearly 100 percent of the time, while two arbitrators reviewing otherwise identical claims dismissed those claims nearly 100 percent of the time.” Id. at 2. Near-identical claims. Opposite results, depending on which arbitrator got the file. Public Citizen’s analysis of the Forum’s own California disclosures, 33,948 cases from 2003 to early 2007, found that “[i]n the more than 19,000 cases in which an NAF-appointed arbitrator was involved, 94 percent of decisions were for business.” The Arbitration Trap, at 2. Public Citizen is an advocacy group, and it doesn’t hide that. The numbers it crunched were the Forum’s own.
So what took the Forum out of consumer arbitration? Minnesota’s Attorney General. Not the Legislature. Not a statute. A consumer-fraud lawsuit, and a company that settled three days later. The other big provider, the American Arbitration Association, had already gotten out: the subcommittee chairman said it “states that they have stopped doing this as of June 2009.” Hearing, at 2.
Then Washington got its turn. In 2017 the Consumer Financial Protection Bureau finished a rule on arbitration agreements in consumer financial contracts. Congress killed it under the Congressional Review Act. The House passed the resolution on July 25, 2017. The Senate passed it “By 51 yeas to 50 nays, Vice President voting yea”. 163 Cong. Rec. D1115 (daily ed. Oct. 24, 2017). It came down to the Vice President’s vote. It was signed November 1, 2017. Pub. L. No. 115-74, 131 Stat. 1243. I wrote about what that rule would have meant for one bank’s customers at /news/wells-fargo-forged-signatures-arbitration/, and about how a 1925 statute became the shield in the first place at /news/federal-arbitration-act-consumers/.
And nothing in Minnesota law today stops the next Forum. The Federal Arbitration Act limits what a state can do about arbitration clauses, and I walked through what Minnesota has tried, and what’s survived, at /news/minnesota-arbitration-what-the-state-can-resist/.
Pocket service: the lawsuit that never sees a courthouse
In Minnesota a lawsuit doesn’t start when somebody files it. It starts “when the summons is served upon that defendant”. Minn. R. Civ. P. 3.01(a). So a collector can serve you with a summons and complaint and never file a thing. Lawyers call it hip-pocket service, because that’s where the case lives: in the creditor’s file drawer.
The Minnesota Supreme Court’s Civil Justice Reform Task Force took a hard look at this in its December 23, 2011 report, and it said it better than I can:
Minnesota continues to be an outlier (one of three states) in permitting actions to be commenced by service of the complaint rather than by filing it with the court - aka “hip pocket filing.”
— Civil Justice Reform Task Force, Final Report 21 (Dec. 23, 2011)
Who’s using it? Check the footnote: “Collection firms estimate that they currently have 50,000 non-filed consumer cases that have accumulated over the past several years, and that there are approximately twice as many non-filed consumer cases as there are filed consumer cases.” Id. at 21 n.8. By the collectors’ own estimate, about twice as many collection suits sitting in drawers as in courthouses.
The report also says what happens to the folks on the other end: “some defendants, particularly poor consumers, do not have the resources to bring a motion to dismiss.” Id. at 22. And it records who stood up for the drawer. “The task force heard from consumer collection attorneys representing creditors who indicated that waiting for consumers to get back on their feet is the most common reason for waiting to file, that it is advantageous for consumers to not have the debt appear on the court record, and filing fees and attorney fees will only add to a consumer’s debt burden.” Id.
So the collection bar’s pitch for keeping your lawsuit out of the courthouse was that it’s for your own good. They’re doing you a favor.
The task force backed it anyway. Many of its members, it said, believed “it is not necessary to change the rule on commencement of actions”. Id. at 21. It recommended keeping service-commencement, and by a vote of 16 to 4 it decided that adding a one-year filing deadline is reasonable. Id. at 22. The court went along. It adopted that version by orders issued February 4 and February 12, 2013, then restated the amendments in a May 7, 2013 order that made them effective July 1, 2013, and gave everyone a year’s grace: no action could be involuntarily dismissed under the new rule until July 1, 2014. Order Relating to the Civil Justice Reform Task Force, Authorizing Expedited Civil Litigation Track Pilot Project, and Adopting Amendments to the Rules of Civil Procedure and the General Rules of Practice, Nos. ADM10-8051, ADM09-8009, ADM04-8001, ¶¶ 4–5 & recital (Minn. May 7, 2013); Minn. R. Civ. P. 5.04 (history note). Here’s the rule today:
Any action that is not filed with the court within one year of commencement against any party is deemed dismissed with prejudice against all parties unless the parties within that year sign a stipulation to extend the filing period.
— Minn. R. Civ. P. 5.04(a)
That’s a real deadline, with real teeth. I’ll give the court that much. It still lets the case sit in the drawer. A collector still gets a year of you knowing about the lawsuit and no judge knowing anything. And a creditor can garnish before a default judgment is even entered, without filing a thing. Minn. Stat. § 571.71(2). The hub piece has the statute and the form. You’ll hear that the debt collectors lobbied for pocket service. I looked for a lobbying record on it and couldn’t find one. What I can show you is the collection attorneys telling the Supreme Court’s task force why they wait to file, and the court keeping the practice they use.
And the collectors’ national trade group? A Minnesota outfit too, at least on paper. A 2015 federal lobbying registration lists ACA International at a Minneapolis address and describes it as a “Trade association of companies and professionals offering credit collection services”. Lobbying Registration, Lobbying Disclosure Act of 1995, Phil Bond & Associates for ACA International (effective June 18, 2015).
Two more for the pile. In 2013 the Legislature finally made debt buyers prove what they’re collecting before they get a default judgment. I covered that at /news/minnesota-debt-buyer-judgments-548-101/. And a Minnesotan can still end up in handcuffs after a card judgment, over a disclosure form a creditor’s lawyer is allowed to issue. That one’s at /news/minnesota-no-imprisonment-for-debt-art-1-sec-12/.
The scorecard
1978. Minnesota’s Attorney General went to the Supreme Court to defend a 12 percent card cap and lost. Unanimously. The cap’s out-of-state reach has been a dead letter against national banks ever since, and the words are still sitting in § 48.185.
2009. The National Arbitration Forum, headquartered in St. Louis Park, quit consumer arbitration three days after the Attorney General sued it. The Legislature didn’t do that. A lawsuit did.
2013. The Supreme Court bolted a one-year filing deadline onto hip-pocket service and kept hip-pocket service. The Legislature passed debt-buyer proof rules and a $50 bail rule for missed consumer-debt disclosure forms. Minn. Stat. §§ 548.101, 588.04(b).
2024–2025. The Legislature banned medical-debt credit reporting, softened the garnishment percentage for lower earners in new cases, and left every card creditor’s right to garnish the paycheck right where it was.
Forty-seven years after Marquette, Congress has had a bill on its desk to cap card rates and hasn’t moved it. That one’s not on Minnesota. Wage garnishment is. Congress wrote into federal law on May 29, 1968, that its ceiling leaves every state free to say no. Texas had been saying it since 1876. Minnesota, the home of Minnesota Nice, has never said no to a card creditor on an ordinary working paycheck.
The people who could change that are the voters of Minnesota, who keep sending a legislature to St. Paul that doesn’t. This history is disgraceful. And we the people have allowed it.
Madgett Law, LLC
Madgett Law, LLC defends Minnesotans sued on credit card and other consumer debt, including the debt-buyer suits that end in default judgments, and takes on garnishment and exemption fights. We also sit down with creditors for our clients before a judgment narrows the options; more on that is on our bankruptcy avoidance page. If you’ve been served with a summons that was never filed, or a garnishment notice just showed up, send us a message.
Sources: Marquette National Bank of Minneapolis v. First of Omaha Service Corp., 439 U.S. 299, 300–04 & nn.4–5, 306–08, 313, 318–19 (1978) (Caselaw Access Project). Minn. Stat. § 48.185, subd. 3 (18 percent annual percentage rate), subd. 6 (application; choice-of-law clause invalid). Eleanor Erdevig, Small States Teach a Big Banking Lesson, Chicago Fed Letter No. 10 (Federal Reserve Bank of Chicago, June 1988). President Donald J. Trump, Truth Social post (Jan. 9, 2026), truthsocial.com/@realDonaldTrump/115868132990949589, as reproduced in CBS News and Business Insider (Jan. 2026). S. 381, 119th Cong. §§ 1, 2(a), 2(c) (introduced Feb. 4, 2025) (govinfo). 15 U.S.C. § 1673(a) (federal garnishment ceiling); § 1677(1) (more protective state laws) (United States Code, 2024 ed., govinfo). Minn. Stat. § 571.922(a)(1) (25 percent tier); 2024 Minn. Laws ch. 114, art. 3, § 101 (tiered limits); 2025 Minn. Laws ch. 18, § 21 (amending the effective date of 2024 Minn. Laws ch. 114, art. 3, § 101). Minn. Stat. § 571.927, subd. 1 (no discharge for garnishment); § 571.71(2) (garnishment before judgment where a Rule 55.01(a) default could be entered); § 548.101 (2013 Minn. Laws ch. 104, § 3); § 588.04(b) ($50 bail; 2013 Minn. Laws ch. 104, § 5). Minn. Stat. § 332C.03(a) (medical debt reporting prohibited); chapter 332C, chapter 571, and § 550.37 (searched for a medical-debt garnishment prohibition). State of Minnesota v. National Arbitration Forum, Inc., National Arbitration Forum, LLC, and Dispute Management Services, LLC, d/b/a Forthright, Complaint ¶¶ 1–3, 7–9, 14 (Minn. Dist. Ct. Hennepin Cnty., July 14, 2009). Arbitration or Arbitrary: The Misuse of Mandatory Arbitration to Collect Consumer Debts: Hearing Before the Subcomm. on Domestic Policy of the H. Comm. on Oversight and Government Reform, 111th Cong. (July 22, 2009) (Serial No. 111-125) (govinfo, CHRG-111hhrg64915) (opening statement; witness introductions; testimony of the Minnesota Attorney General and of the National Arbitration Forum’s chief operating officer). Public Citizen, The Arbitration Trap: How Credit Card Companies Ensnare Consumers 1–2, 15, 21 (Sept. 2007) (citizen.org). Pub. L. No. 115-74, 131 Stat. 1243 (Nov. 1, 2017) and legislative history (govinfo); 15 U.S.C. § 1677 source credit (Pub. L. 90-321, title III, § 307, May 29, 1968); 163 Cong. Rec. D1115 (daily ed. Oct. 24, 2017) (Daily Digest). Minn. R. Civ. P. 3.01(a), 5.04(a) and history note. Minnesota Supreme Court Civil Justice Reform Task Force, Final Report 21–22 & n.8 (Dec. 23, 2011) (No. ADM10-8051) (Minnesota Legislative Reference Library). Order Relating to the Civil Justice Reform Task Force, Authorizing Expedited Civil Litigation Track Pilot Project, and Adopting Amendments to the Rules of Civil Procedure and the General Rules of Practice, Nos. ADM10-8051, ADM09-8009, ADM04-8001 (Minn. May 7, 2013) (recital naming the February 4 and February 12, 2013 orders; ¶ 4 effective date July 1, 2013 and the one-year bar on involuntary dismissal under Rule 5.04; ¶ 5 rescinding the February orders to the extent inconsistent; attached text of Rules 3.01 and 5.04) (Minnesota Lawyer full-text copy). Lobbying Registration (LD-1), Phil Bond & Associates for ACA International, effective June 18, 2015 (Senate Office of Public Records, lda.senate.gov). This article is commentary and general legal information about Minnesota law. It is not legal advice, it does not create an attorney–client relationship, and no particular outcome is promised or implied.