THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Wednesday, April 24, 1996 TAG: 9604240001
SECTION: FRONT PAGE: A14 EDITION: FINAL
TYPE: Editorial
LENGTH: Medium: 59 lines
Virginia is to credit-card companies what Liberia and Panama are to shipping companies: a haven from regulation.
Thus on many ships from around the world the Liberian or Panamanian banner is a ``flag of convenience.''
If credit-card companies flew state flags, more and more would fly the Virginia flag as a ``flag of convenience.'' The companies don't move their operations here, any more than an American shipping company moves most of its employees to Liberia or Panama. Instead, credit-card companies transfer their ``home office'' mailing addresses to Virginia in order to operate under the state's relaxed credit regulation.
Virginia has no cap on interest rates that credit-card companies may charge. Nor does the state limit annual late-payment or over-limit fees. A credit-card company could hardly ask for more.
As the Richmond Times-Dispatch reported Sunday, ``Credit-card issuers must abide by the laws of the state in which their home office is located, and the laws apply to card holders regardless of where they live.''
By having a mailing address here, a company, for legal purposes, makes Virginians of its customers, wherever they reside. And the move of the home office to Virginia is inexpensive, since it's mainly a paperwork transaction, requiring no heavy lifting or vans.
Three banks, including Chevy Chase Bank of Maryland, recently filed applications to transfer their ``home offices,'' but few employees, to Virginia.
A 1987 attempt to cap credit-card interest rates in Virginia was unsuccessful after bankers said a cap would drive or keep away credit-card companies.
Jean Ann Fox, president of the Virginia Citizens Consumer Council, recently told the Times-Dispatch, ``The legislature was sold on the basis of all the jobs they were going to get. If it turns out that it's just an address change on a letterhead and there's no impact on jobs, then what we end up with is less protection for consumers in the credit market and not much job improvement for the local economy. Bad deal.''
In fact, the only thing Virginia gets is a bad reputation as the national home of gougers.
Economists debate whether interest caps are ever helpful. When caps are too low, credit dries up, which no one wants. Competition, alone, is supposed to hold down interest rates, but competition dampens rates only if consumers pay attention to them and continually seek lower ones.
When credit-card companies from other states open ``home offices'' in Virginia in order to charge steeper interest rates and higher fees, Virginians should get the message that they have fewer protections than consumers in most states and had better watch out for themselves.
Remember, it wasn't a state agency or official that caught Trigon Blue Cross Blue Shield overbilling its insurance customers by tens of millions of dollars. It was an individual looking out for himself. by CNB