Virginia consumers are paying millions of dollars in extra finance charges on credit cards because they do not understand how interest rates are computed, a Virginia legislator said today.

Del. Bernard S. Cohen (D-Alexandria) said most consumers believe that, by law, they have a 25-day grace period to pay their bills to avoid interest charges.

However, Cohen said at a public hearing on credit card rates that few consumers know that they forfeit that grace period any time there is any outstanding balance on their bill. Therefore, new charges are subject to interest from the day of purchase if the customer has a previous charge on his or her bill.

The effect, Cohen told a House public hearing on credit cards, is wildly inflated finance charges for many of the 2 million credit cards used in Virginia.

About two-thirds of the credit cards in the state carry over balances from month to month, banking lobbyists said, disqualifying card holders from the grace period allowed by law.

Cohen is a sponsor of a bill pending in the state Senate that would prohibit banks and other credit card issuers from charging interest on any credit card amounts that are paid off within the grace period.

A House bill that would impose a ceiling on credit card interest rates in the state -- now averaging about 18 percent -- today was put off until next year by the House Committee on Corporations, Insurance and Banking.

Del. George W. Grayson (D-Williamsburg), who sponsored the House bill, said banks are refusing to change interest rates on their bank cards even though rates for automobiles, homes and other goods have declined sharply.

"It's as if (credit card interest rates) are frozen in golden ice," Grayson said.

Cohen, who clashed sharply with the banking lobbyists, gave this example of confusion over when interest charges are imposed:

A consumer receives a January credit card bill of $15 but decides not to pay it because it is so small. The interest rate (at 18 percent per year) would be 1.5 percent per month, or 23 cents for the month the card holder does not pay the bill.

On the first day of the next billing cycle, however, the consumer buys $500 worth of merchandise.

Cohen said he believes that a typical consumer would expect the next credit card bill to show a balance of $515 plus the 23 cents interest on the bill not paid the month before and that there is a 25-day grace period to pay off the $500 to avoid finance charges.

However, under state law, banks may charge interest on the $500 purchase -- and any other purchase made during the billing cycle -- because the $15 debt was carried over from the previous bill, Cohen said.

The effect is that the consumer pays the 23-cent interest on the $15 plus $7.50 interest on the $500.

"All for not paying a $15 bill," Cohen said in an interview, "the consumer pays $7.73 . . . in interest," a rate he said is in effect 51 percent -- nearly three times the stated average rate of about 18 percent.

"The moment there is a rollover," Cohen complained, "everything purchased thereafter is factored in."

Banking lobbyists did not dispute Cohen's interpretation of the law on interest rate computations, but they insisted that most consumers understand how interest is computed.

A reporter's informal survey today of about a dozen banks and savings and loans associations along Richmond's Main Street financial center showed that all offered brochures of many types, but none that explained credit card rates.

In addition, several bank employes handing out credit card applications acknowledged that they did not understand interest rates. "I just pay the minimum due on my statement each month," one bank clerk said when asked how much interest is charged.