Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: WEDNESDAY, March 11, 1992 TAG: 9203110324
SECTION: EDITORIAL PAGE: A-7 EDITION: METRO
SOURCE: WALTER C. AYERS
DATELINE: LENGTH: Medium
The bill does remove Virginia as one of the seven states in the nation that mandates a 25-day free period. In the 43 states that do not mandate a 25-day free period, the free period is just as available as it is in Virginia.
According to a Federal Reserve Bank report, some 95 percent of card issuers provide a free period, even where the law does not require it. It is the law of the marketplace, not statutory law, that causes the free period to exist. There is simply no reason to believe that banks are going to withdraw their free-period cards, even though the new law would not prohibit it.
It is interesting to note that 70 percent of the cards held by Virginians today are issued by out-of-state institutions. The current Virginia law does not control these out-of-state issues. These institutions already have the legal ability to remove the free period if that were really the objective of the card companies.
What may occur as a result of the new legislation is that some card issuers may, in addition to their free-period card, also issue a no-free-period card. Because about two-thirds of all cardholders carry an unpaid balance, and do not use the free period, a no-free-period card would likely be a better alternative for them.
The Bank of New York, for example, offers a no-free-period card, but with no annual fee and an interest rate (currently around 12 percent) lower than on a standard free-period card. The AFL-CIO offers its members an affinity credit card with similar provisions.
With both free-period cards and no-free-period cards available, the consumer could pick the one that best serves his or her needs. The current Virginia law, which the bill in question amends, attempts to deny that alternative.
The central purpose of the bill was to protect and retain Virginia jobs. Virginia ranks six in the nation in credit-card volume issued by banks. The card business is a major contributor to the state's economic and job base. Virginia card banks employ over 2,100 people with a payroll of over $58 million, and account for over $3.3 million paid in taxes. Without a free-market statute, it is highly likely that many of these jobs would be lost to those states that do have a free-market statute.
The practice of firms to headquarter their card operations in free-market states is already entrenched. Of the top 50 card issuers, 31 are now in a free-market state. We need look only as far away as Maryland to see the results of failure to have a competitive law.
When Maryland failed to modify its card statute in the early '80s, Maryland National Bank and the First National Bank of Maryland moved their operations to Delaware. Today, the card operations that those two institutions moved to Delaware employ over 5,500 people. They would likely have been employed in Maryland, had the Maryland legislature adopted a bill like the one just passed by the Virginia General Assembly.
The new statute will make Virginia a competitive state in what has become a highly competitive national business. The flow of money and the demand for credit is no longer influenced by state boundaries. An individual can secure a credit card issued by a national provider operating out of another state just as easily as he or she can secure a card from a local bank.
To continue to ignore the reality of the marketplace, and try to regulate Virginia card issuers while out-of-state issuers enjoy the ability to respond to the free market, ultimately harms that which the Virginia law was designed to protect: our own local economy and cardholders themselves.
Walter C. Ayers, of Richmond, is executive vice president Virginia Bankers Association.
by CNB