South Dakota topped the list of states best suited to operate a card business in 1994, according to a DRI/McGraw-Hill study.

Kansas came in last.

"It wasn't a year of big change," said David Wyss, research director for DRI/McGraw-Hill in Lexington, Mass. But he said Pennsylvania, California, and Mississippi notably eased regulations.

The study, sponsored by MasterCard International, is meant to address the main concerns for issuers in choosing a location for their credit card operations.

It considers such factors as the number of class action suits filed against banks and restrictions on annual percentage rates, late fees, and over-limit fees, said Charlotte Rush, MasterCard's vice president for public affairs in Washington. Also weighed are the cost of doing business, the quality of life, and the availability of skilled labor, she said.

She added that the survey, in its third year, is not intended to be used as the primary tool for a relocation decision, but is "more of a lobbying tool used to work with state legislatures and governors to show where they could improve the regulatory climate."

While the study hasn't uncovered a great shifting of state ranking, Mr. Wyss said there have been regulatory improvements, inspired by legislators' "fear of losing jobs. People are realizing jobs don't grow on trees." He pointed out that the card industry creates high-paying, low-polluting employment for computer programmers, keypunch operators, telemarketers, and others.

Scott Cammarn, partner with Zeiger, Dreher & Carpenter,the Columbus, Ohio-based law firm that compiled state regulations for the study, said there is substantial pressure on states to make a better legal environment for issuers. "Because of the failure of Congress to resolve the Fair Credit Reporting Act at the federal level, states are stepping into the fray and enacting their own statutes," he said.

According to the study, South Dakota pushed Utah to number two. Arizona and Nevada nudged up a few places each to numbers five and nine, respectively.

Virginia and Delaware, tied for sixth place, got high marks for legal issues alone, but operating-cost and quality-of-life ratings were less glowing.

Louisiana moved up significantly, Mr. Wyss said, from No. 17 to No. 4, after a reassessment of its regulatory environment. The state eased restrictions on annual percentage rates.

Nebraska ranked third, Idaho eighth, and Oregon 10th on the list of most desirable card sites.

Florida, regarded as having one of the more favorable regulatory environments, fell two places to No. 12 because of an increase in business costs.

Georgia suffered a similar fate, slipping from 12th to 16th, because of an increase in premises costs in Atlanta, attributed to the Olympics.

South Dakota - home of the Citibank's card operation, the largest in the country - Utah, Arizona, and Nevada have picked up the most business from outside states, said Mr. Wyss. He said they benefited from being close to California, which improved its rank last year from 33d to 28th by lightening its regulatory burden. Still, he said, the Golden State has an "unfriendly legal climate, which costs it a lot of points, and it's expensive to operate in."

By eliminating restrictions on annual percentage rate, Maine shot up from last place to 38th. Even so, Mr. Wyss said the cost of doing business is "fairly high up there, and the overall legal environment rates poorly."

Mississippi had the best jump, from 32d to 20th, mostly due to regulation of annual percentage rates.

Ms. Rush noted that Pennsylvania improved slightly, moving up five places, but remained in the bottom 10. While its legislature eased fee regulation, "its legal environment is very troubling," said Ms. Rush. "A judge has ruled against several banks in key late fee litigation."

Worst-ranked Kansas has the worst legal climate, the study found. It cited tight restrictions on interest rates, late fees, a restrictive fair- credit law, and high operating expenses in Kansas City.

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