The holding company for the First National Bank of Maryland announced Thursday that it plans to relocate its credit card operations in Millsboro, Del., to circumvent Maryland's 18 percent usury ceiling and its prohibition against card membership fees.
Other banks are expected to follow suit, to take advantage of Delaware's tax incentives and its removal of interest-rate ceilings. Several New York banks are exploring the idea of establishing subsidiaries there, too.
First Maryland Bancorp, the state's second-largest bank holding company, said it has signed a letter of intent to purchase a 300,000-square-foot building about 20 miles north of Salisbury, Md., home of the bank's regional processing center. First National's credit card operations, which serve 250,000 Maryland customers, are now in Glen Burnie. Between 300 and 1,000 employes will be hired for the Delaware site, which is to become a full-service bank eventually.
High interest rates in the past two years have made credit cards an unprofitable business. Most issuers have imposed initial fees or eliminated the 30-day free period during which no interest is charged. Maryland has an 18 percent ceiling on the first $700 of a customer's outstanding balance, and 12 percent on any amount above that. The rate charged is that permitted by the state of issuance -- in this case Delaware -- rather than the state of residence, Maryland.
Six states have eliminated usury laws and others have raised the ceilings, in some cases as high as 33 percent. Despite notice from Maryland banks that they would move to Delaware if the Maryland General Assembly did not act, the legislature refused to raise interest rates and permit fees. Thus far, no other banks have publicly announced plans to move, but a banking official said yesterday that others are looking for locations in Delaware.