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The 1978 Supreme Court ruling in Marquette v. First of Omaha let nationally chartered banks charge customers the interest rates allowed in their home state, whatever the borrower's own state permitted. The change came through judicial and administrative reinterpretation of old banking law rather than an open legislative debate over consumer pricing.
When the courts in Smiley v. Citibank (1996) accepted the classification of late fees and similar penalty charges as 'interest', those fees gained the same exportation privilege as rates. Lenders could then escape state caps on penalty charges as well. Legal classification, not economic substance, decided which consumer protections applied, so relabeling a charge was a strategy for shedding regulation.
Once visible interest rates face competition and scrutiny, lenders move revenue into back-end fees such as late, overlimit, origination and overdraft charges, which borrowers rarely factor in when choosing a product. This lets a product look cheap at the point of sale while earning its profit afterward. To judge a credit product's real cost, you have to look at where the money is actually collected, not at the advertised rate.
Car dealers who arranged financing could add a discretionary markup, the 'dealer reserve', on top of the rate the lender approved, and they kept part of that spread as compensation. Because the markup was left to the dealer's judgment rather than tied to credit risk, Black and Latino borrowers systematically paid more than white borrowers with comparable credit. A facially neutral pricing discretion became a channel for racial price discrimination.
Mortgage brokers received yield spread premiums, payments from lenders for placing borrowers in loans with higher rates than the borrowers qualified for. This rewarded intermediaries for steering customers, disproportionately in minority neighborhoods, into subprime products loaded with fees and prepayment penalties. The intermediary's pay was structured against the interest of the client it appeared to serve.
Fees fall hardest on people with thin cash cushions, who are more likely to incur overdrafts, late payments, payday rollovers and high-cost refinancing, and these households are disproportionately Black, Latino and working class. The fees repeatedly drain small sums from those least able to save and build assets. Taken together, they help widen racial and class wealth gaps that were already rooted in earlier discrimination.