IN NOVEMBER 1981, when double-digit inflation was still raging and the prime rate was near 17.5 percent, the San Francisco-based Bank of America was charging 18 percent interest for its Visa credit card. Today, with inflation back down to a manageable rate between 3 and 4 percent and the prime rate at 9.5 percent, Bank of America's credit card interest rate has climbed to 19.8 percent.

Bank of America -- one of the nation's largest -- is not alone in having raised its credit card interest rates at a time when charges for other forms of credit have dropped. Other large banks -- Chase Manhattan, Citibank and Riggs National Bank -- all charge the same high rate for their credit cards.

Although these major banks offer a variety of reasons to explain why the interest rates they charge for their credit cards either have held steady or increased despite declining interest rates in the rest of the economy, the real explanation is fairly simple: Consumer credit card rates have stayed high because the field is dominated by large banks that have tacitly chosen not to use lower interest rates as a way to compete with each other for customers.

The fact is, banks today pay only about 7 percent -- down from almost 16 percent in 1981 -- for the money they lend their customers, whether it is for car loans or for credit cards. But while auto loans have dropped from 17 percent to 12 percent, credit card interest rates have jumped from 17 percent to 19 percent or more. The result is of no small consequence to American consumers, who have amassed a total outstanding credit card debt in excess of $110 billion.

As a result of the spread between what banks pay for money and what they charge credit card users, the credit card industry is experiencing an incomparable boom. According to the New York Federal Reserve Bank, credit card loans are the single most profitable of all loans made by major banks. At the same time, Congress is beginning to ask why rates are so high. The credit card industry has responded to the recent unwanted attention with a huge lobbying effort designed to head off Congressional attempts to force interest rates down to fair levels. In the course of their efforts, industry representatives have made three arguments:

*First, the industry claims credit card loans cost lenders more than other loans. Industry officials maintain that high credit card rates reflect the high cost of issuing that kind of credit. The average outstanding loan is small, they say; many customers pay on time and avoid interest charges; and, as a senior executive at Bloomingdales (19.8 percent) yelled at one congressional aide, "Do you know how much postage has gone up?"

In fact, in the last six and a half years postage increases have lagged behind the overall increase in the cost of living. Generally, operating costs increase roughly in proportion to the overall rise in prices -- and inflation has plummeted in the last five years.

Most important, the single largest component of the total cost of providing a credit card loan is the cost of money, which has dropped by almost 50 percent since 1980. Even if the cost of funds represents only 30 percent of the total cost to credit card issuers, as American Bankers Association officials have claimed, interest rates should have declined by more than two points since 1981. Instead they have risen by just about that amount.

*Second, the industry maintains high rates are necessary to cover significant increases in fraud and credit losses.

Not so. According to the Nilson Report, a respected industry newsletter, these losses averaged 1 percent of volume over the last 30 years and will average less than 1.2 percent of volume over the next six years That's hardly a dramatic increase -- and nothing compared to the decline in the cost of money.

*Third, the industry says it is merely recouping huge losses racked up in the high-inflation late 1970s and early 1980s.

This argument contradicts each of the other credit card assertions: First, it is an admission that the banks artificially control interest rates according to their profit needs. Second, the argument that credit card issuers are just making up for previous losses undermines the assertion that the cost of funds is not an important component of credit card costs. If high money costs can cause excessive losses, low money costs can lead to excessive profits.

In truth, there is one short and simple response to the industry's claim that it is just squeeking by charging an average interest of 19 percent: A handful of the country's smaller banks, which are burdened with higher marginal costs than the national banks, charge as low as 12.5 percent on their Visa and Mastercards, and are making money.

Why is the average credit card rate so high? One would have assumed that the deregulation of the banking industry would have sparked some competition and benefitted consumers with better rates and services. Instead a reading of the list of the top 10 credit card issuers -- which together control over one-third of the market -- makes a broken record sound interesting:

Citicorp -- 19.8 percent; Bank of America -- 19.8 percent; First National Bank of Chicago -- 19.8 percent, Chase Manhattan -- 19.8 percent, Chemical Bank -- 19.5 percent. Sears, J.C. Penney and Montgomery Ward, the three department stores in the top 10, are at 21, 21 and 21.6 percent.

Where is the competition? When Woodie's brings down its linen prices, you can bet Hecht's will follow suit. Unfortunately, there are no credit card white sales; there is no such competition in the credit card industry.

The credit card industry represents what economists call an oligopoly, an industry where a few large sellers determine the price of goods, in this case credit. Card issuers understand that if all rates are high, all the banks win, because they already have plenty of customers and plenty of profit. But if a couple of banks lower rates, all the banks will have to do so, and each will lose its excess profits.

The operation of a free market in the credit card field is hampered by two factors:

First, consumers have little choice. An intelligent shopper who wants to compare and save would have to spend several days and hundreds of dollars calling banks around the country to discover fair rates. The small banks with low rates can't afford to advertise nationally, and the big national banks, which dominate the market, refuse to compete.

Second, consumers, unhappily, are not well-informed about the details of credit cards. Many consumers believe, for example, that all credit card interest rates are the same. Or they believe that Visa and Mastercard are available only from the large, national banks. Or that the annual fees at the smaller banks are higher. Or that a Mastercard card from Ohio's Gem Bank (13 percent) will be accepted less easily than a Mastercard from New York's Chase Manhattan (19.8 percent.) Or, simply, that there must be some catch to the lower interest rates. Consumers have heard of Citibank (19.8 percent), but not of Simmons Bank (12.5 percent), and they falsely figure that by sticking with the big name they are avoiding some risk.

But this should not be taken as an indication that consumers do not care whether or not the credit card market is free. When the first nationwide list of 30 banks that offered credit cards at below average rates was released recently, the response was overwhelming. Thousands of consumers called or wrote the banks on the list, which have reported a sizable increase in applications for their cards.

If more and more consumers switch credit cards, then a few of the leading banks might take a chance and lower their interest rates. If not, government action may be warranted. The first step could be for Congress to mandate a study by the Federal Reserve Board or some similar institution to determine once and for all whether prevailing credit card interest rates in recent years reflect costs to issuers and competition among creditors. The attention drawn to such a study might prompt consumers to trade in high-rate cards for low-rate cards.

If this consumer pressure is not enough, then political pressure may be necessary.

If banks do not respond with lower rates to the Fed study, Congress's second step could be the imposition of an interest rate ceiling, which could be triggered by the study's conclusion that rates were artificially high. The experience of the few states with interest caps proves the idea is sound. A federal cap is needed so that credit card issuers cannot simply bypass the law by moving to another state, as some banks are now doing.

To be fair, a federal ceiling should be flexible; banks should not be squeezed by fluctuations in the cost of money. One possibility is to peg the cap to the three-month Treasury bill rate, a good reflection of what banks pay for the money they lend. The cap could be adjusted quarterly. Such a federal rate ceiling should not mandate a specific credit card rate, but should establish a maximum rate below which banks would compete.

It would be better if a credit card interest rate ceiling is never imposed. It would be far more preferable if consumer action or the mere specter of a national ceiling induced banks and other credit card issuers to reduce their unjustifiably high rates. If the credit card market is not free, however, Congress should take steps to make sure interest rates are fair. Until then, shoppers may want to consider the advantages of leaving home without it.