Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: TUESDAY, February 11, 1992 TAG: 9202110077
SECTION: BUSINESS PAGE: A3 EDITION: STATE
SOURCE: GREG SCHNEIDER STAFF WRITER
DATELINE: RICHMOND LENGTH: Long
BILL KILLING GRACE PERIOD ON CREDIT PASSES HOUSE
Banks could charge interest from the moment you buy something with your credit card under a bill approved 95-3 by the House of Delegates on Monday.Virginia banks currently are required to give a grace period on credit cards -- if you pay your bill on time and in full, there is no interest charge. Interest payments start 25 days after the last billing date.
The measure approved Monday would essentially deregulate the credit-card industry and allow banks to set whatever conditions consumers would accept.
Sponsored by Del. Lewis Parker, D-South Hill, the bill is part of an economic growth package recommended by Lt. Gov. Donald Beyer and a special study commission.
"It was presented solely as an economic development, job-related bill," said Walter Ayres of the Virginia Bankers Association, which has lobbied for the bill.
Ayres insisted that most banks would not charge immediate interest if the bill went into law, but said the change is needed to keep Virginia banks competitive with those in neighboring states.
Only 13 other states mandate the grace period, Ayres said, and banks tend to avoid those places when setting up credit card headquarters. More than half of all Virginians have credit cards issued in non-regulated states, and all of them offer the grace period, he said.
"The law of the market requires it, competition requires it," Ayres said.
He added that letting Virginia banks obey the market instead of the General Assembly would attract more of the credit industry, and more jobs, to the state.
The grace period has long been a thorn in the side for state bankers, whose lobby generally is regarded as among the most influential in the General Assembly.
In addition to their lobbying, banks, bankers, and their association contributed a total of $181,779 last year to campaigns of the 95 delegates who voted in favor of the bill, according to a computer database of campaign contributions compiled by The Virginian-Pilot and The Ledger-Star.
One of the bill's three opponents, House Speaker Thomas Moss of Norfolk, was among the largest recipients of banking contributions, however; he received $9,050.
"With the rates banks are getting now on credit cards, I didn't think they should change that free float [grace period] everybody has right now," Moss said Monday.
Another opponent, Victor Thomas, D-Roanoke, expressed reservations about the whole idea of deregulating credit cards.
"It says they can collect `other charges and fees,' " Thomas said. "What could that be? How much? On what? I think people are already paying enough."
The measure goes on to the Senate for further debate.
Like Ayres, Beverly Fitzpatrick Jr., a vice president at Dominion Bankshares Corp. in Roanoke, described the legislation as a "jobs bill," adding that it did not come from the banking industry.
About 2,100 people are employed in the credit-card industry in Virginia, Fitzpatrick said, yet 64 percent of Virginians use cards issued by out-of-state banks. That means Virginia banks are not competitive with the national marketplace, he said.
Fitzpatrick noted that NationsBank in January moved its credit-card operation to Delaware. Meanwhile, he said, a banking "prospect" is negotiating for "a major piece of business" that would add 500 to 1,000 credit card processing jobs in Virginia.
But the location of those new jobs in the state depends on deregulation of the industry, Fitzpatrick said.
Jean Ann Fox, president of the Virginia Citizens Consumer Council, said Richmond-based Signet Bank gave persuasive testimony in favor of the elimination of the grace period.
Fox said the bank's spokesman argued that Signet was trying to get a credit card operation located in Virginia, but didn't stand a chance in its negotiations because Virginia is not a "free trade state like Delaware and South Dakota," where there are no grace periods on interest charges.
Fox said Signet told the House Committee on Corporations, Insurance and Banking that the center would bring 1,800 jobs to Virginia.
Fox said the volunteer citizens' group "carried on about the bill" in committee, but made no progress with its opposition.
"It was a jobs bill, the way it was argued," said Fox.
Even if the law passes, Fitzpatrick said, he believes there would be no change in the grace period in Virginia in the foreseeable future because of competition among credit card issuers. In Delaware, for example, terms and rates are driven by market conditions, Fitzpatrick said, and Delaware banks still offer grace periods on their accounts.
Dominion Bank supports the bill because it would help maintain jobs at its credit card operations center in Roanoke, he said.
Freda Carper, spokeswoman in Roanoke for Crestar Bank, said officials there have no knowledge about the pending legislation. But she said Crestar has no plans to make any changes in its credit card operation.
Fox said there were two attempts to amend the bill to soften its impact. One amendment suggested that it not apply to credit cards issued by retailers such as department stores and another amendment would have eliminated annual fees on cards. Both amendments failed.
Fox said one of the arguments for an annual fee is that it offsets the interest lost by the existence of the grace period.
Fox said that the consumer group does not expect banks to "rush out" and eliminate the grace period, but it is something they could be expected to do over time.
She also said that there likely will be credit card companies that retain the grace period, giving consumers an option.
Some 28 percent to 30 percent of the bank credit card holders pay their bills in full monthly, according to the Bank Card Holders of Virginia, also a citizen group, Fox said. She said she had no data on how many store card holders pay up monthly.
Fox said the bill also removes restrictions on what penalties and fees can be charged for late payments.
Business writers Sandra Brown Kelly and Mag Poff contributed to this story.