Some of Virginia's most influential legislators, in a rare public dispute with the state's powerful banking community, today accused some bankers of taking advantage of a loophole in a new law that would allow them to raise interest rates on credit-card borrowing.
House Banking Chairman C. Hardaway Marks today convened a special session of the Corporation, Insurance and Banking Committee -- normally considered friendly territory by the state's major banks -- to announce the panel would introduce emergency legislation this week to plug the loophole. It was, Marks, said, inadvertently written into a credit union bill passed earlier this year.
"It's been the consensus of some of us that somebody is trying to take advantage of this legislature," said Marks, himself a vice chairman of a bank in Hopewell, 20 miles south of Richmond.
Two months ago, the committee stunned bankers by defeating on a tie vote a bill that would have allowed banks and retailers to raise by one-third their interest rates on credit-card borrowing -- from the present ceiling of 18 percent annually to 24 percent. At the same time, however, the legislature approved and Gov. John N. Dalton signed a bill allowing employe credit unions to raise interest rates for small loans from 15 percent to 21 percent.
Virginia Banking Association lobbyist W. O. Pearce and a number of bankers contend that the credit union law would permit federally chartered banks to raise their credit card rates to the same 21 percent rate. The bankers say that would be proper because U.S. law and court decisions allow national banks to charge the same interest rates as state-chartered institutions may charge.
"That's been permissible for 100 years since the Supreme Court ruled in Tiffany v. National Bank of Missouri in 1874," said Pearce. "I don't know why everyone's getting so excited about it now."
Some lawmakers are excited nonetheless. "For the banks to lose on their bill . . . and then to go out and say 'We can find this loophole' is a complete breach of faith," said House Finance Chairman Archibald A. Campbell, a member of the banking committee.
None of the banks has invoked the loophole yet to raise interest rates and Pearce said he knew of no bank that was considering such a move. James Morrison, vice president in charge of First and Merchant National Bank's credit card operations here, said his company was considering an increase, and other banks reportedly have requested opinions from their lawyers on the legality of an increase.
"We knew that option was the and it is under consideration," said Morrison, who said the bank is also debating whether to impose an annual user's fee on its credit cards. Shortly after the legislature refused to allow higher credit card interest rates, Bank of Virginia imposed a $15 annual fee to its credit-card customers.
Pearce also said that no matter what the legislature does short of repealing the credit union bill, national banks could still invoke federal court decisions to charge higher rates.
Pearce and other banking representatives told the committee two months ago that banks had lost more than $2 million on their credit card operations last year because the maximum allowed interest rates on credit card borrowings have not kept pace with rates on the money the banks must borrow. Even so the panel, whose members are all up for reelection this fall, defeated by 7 to 7 the bill to raise the state interest ceilings and committee leaders told the bankers to try again next year.