The argument favoring annual membership fees for the privilege of using bank and retail credit cards in Maryland appears to be no stronger today than it was a year ago.
Gov. Harry Hughes is resurrecting the controversial issue, nonetheless, by having legislation drafted that would allow lending institutions and retailers who issue credit cards to charge annual fees so long as the fees are credited against interest due on the account during the year.
Maryland's General Assembly booted a similar proposal out of Annapolis a year ago, and there is no reason why it shouldn't do the same this year.
Even though the state's powerful banking lobby failed to win enough votes last year for passage of a measure that would have allowed banks to charge a fee, it came away with a compromise bill that raised the interest-rate ceiling to 24 percent on credit card purchases.
Prior to July 1, when the new law became effective, lenders could charge 18 percent interest on credit purchases of $700 or less and 12 percent on balances above $700.
Supporters of the higher interest-rate ceiling had argued that relief was necessary because soaring inflation was hurting the lending industry. They warned that issuers of credit cards would abandon the state unless Maryland created a more favorable business climate.
Even after the legislature raised the credit card interest ceiling, four of the state's biggest banks moved their credit card operations to Delaware, where state banking laws permit them to charge unlimited interest and fees.
Hughes reportedly supports the fee proposal as a way to discourage other institutions from moving their credit card divisions to Delaware and to induce those who relocated their operations to return them to Maryland.
Relocating from Delaware may not be as easy as it seems. Considerable start-up costs were involved in those transfers to Delaware, and it's unlikely that any of the four banks would be willing to incur further costs in relocating. The four banks' credit card operations haven't been in Delaware that long.
Although the compromise bill that was passed last year appeared to have been satisfactory to the industry, there were indications even then that the fee issue would be resurrected in the current session of the General Assembly. Thus, it should not come as a surprise that another attempt would be made this year to grant further concessions to the banking industry.
At one point last year, Hughes and others advocated a 36 percent interest-rate ceiling for credit purchases but agreed to 24 percent because it was more politically acceptable in an election year.
The fact that the governor's staff is drafting legislation that would allow a fee of up to $20 suggests that the real intent is to give Maryland-based card issuers parity with their Delaware counterparts.
The same arguments pertaining to inflation and the squeeze on banks' profits don't apply today. Market conditions have improved in the interim.
Inflation is down significantly. The prime rate, which had been hovering around 16 percent a year ago, is down to 11 percent; the discount rate has dropped from 12 percent to 8 1/2 percent; and the federal funds rate has fallen from around 15 1/2 percent to 8 3/8 percent.
Meanwhile, recent reports of earnings by some Maryland banks show record profits for 1982.
The financial institutions claim credit card fees would allow them to charge more competitive interest rates. But late last year, when the prime dropped to 11 1/2 percent, fully one-third of the credit card issuers raised the interest rate--in some cases, as high as 21.6 percent.
Backers of a credit card fee contend that allowing membership fees to be credited against interest payments would protect less affluent consumers, who are more likely to repay credit card balances in installments.
The more affluent credit card users, we are told, avoid interest charges by paying for purchases immediately upon receiving their monthly statements. Less affluent cardholders, who stretch out their payments and incur interest charges, wind up subsidizing their richer counterparts, the argument continues.
It's unlikely, however, that backers of an annual credit card membership fee are approaching this with any altruistic motives where those less affluent consumers are concerned. All credit card owners would wind up paying an annual membership fee, and the less affluent would gain nothing.
Financial institutions and other credit card issuers would be the chief beneficiaries if a new law is enacted allowing them to charge the fees.