Protection For Banks Advances In Senate

Ruling on Fees Exposed Lenders To Damage Claims

A bill to save Maryland's state-chartered banks from paying hundreds of millions of dollars in potential damages to homeowners won preliminary approval yesterday from the Maryland Senate.

The proposal has become the focus of a battle between the banks and the law firm of Baltimore Orioles owner Peter G. Angelos, and so far the banks are winning.

The issue involves penalties imposed by the banks on borrowers who pay off home equity loans or lines of credit on their mortgages early. The banks waived the borrowers' closing costs on the loans, but hit them with fees if they paid off loans before two or three years.

The Maryland Court of Appeals ruled in December that the fees were illegal in the case of an Angelos firm client, a Baltimore man suing Provident Bank. The ruling opens the way for a class-action suit against the bank and others.

The bill being considered by the Senate would reinstate the banks' authority to charge such fees but would not tinker with the court's ruling that banks give refunds to homeowners who paid penalties. However, those homeowners would be unable to seek damages from the banks, which the court said they are entitled to.

The bill passed the House unanimously last week. A final Senate vote is expected this week.

Lawmakers supporting the state-chartered banks argued that if they cannot charge the fees, it will be harder to compete with federal banks that can.

"We ought to change the law so this good product will [continue to] be made available to the public," Sen. Thomas M. Middleton (D-Charles), Finance Committee chairman and a lead sponsor of the bill, told his colleagues. He called the 50 state-chartered banks "your and my community banks."

But opponents said the bill amounts to a bailout for a powerful industry and objected to a key provision, that homeowners who were charged early-payment fees could not seek damages.

"It goes against my grain philosophically," said Sen. George W. Della Jr. (D-Baltimore). "We change the rules of the game because the big bankers in town don't like what the law is and they got caught."

The court ruling was the first in the country to declare penalties on early loan payments illegal, industry experts said. Gov. Martin O'Malley (D), a longtime Angelos foe, is siding with the banks, saying they would increase costs to consumers if the bill is not passed.

Angelos supporters and other opponents of the bill said consumers would lose out if the banks are allowed to charge early-payment fees. But the banks say their promise to continue waiving closing costs is more consumer-friendly.

"We all know there are closing costs involved in borrowing money," said Sen. Rona E. Kramer (D-Montgomery), who supports the bill. "This bill says the lender is going to eat them for us in certain circumstances."