It's a safe bet that the next big consumer battle in Maryland will be waged over a proposal to do away with interest rate limits on consumer credit transactions.
In fact, organized labor in the state has already begun mobilizing its forces to kill the proposal, which its leaders call "ludicrous."
Financial institutions, retailers and consumer finance companies in the state have insisted for years that usury ceilings on interest payments are too restrictive, if not unrealistic.
Recently, four of Maryland's biggest banks announced plans to move their consumer credit operations to Delaware where they could escape interest restrictions and a ban on credit card fees. But consumer groups historically have maintained that usury limits are necessary to protect buyers and borrowers from unconscionable interest rates.
Now, a task force on financial deregulation has concluded that both the consumer who needs credit and the economy of the state suffer "when inflexible and rigid credit restraints reduce the availability of credit and the level of economic activity" in Maryland.
In a report of its findings, the task force concluded that "most of the traditional rationales for usury ceilings are no longer valid in the financial world of the 1980s."
The general rate limit for unsecured loans by financial institutions in Maryland is 18 percent, but consumer finance firms are governed by a graduated rate scale. Open-ended retail credit accounts are limited to 18 percent on the first $700 and 12 percent on balances above that.
"Maryland is losing both jobs and the opportunity to become a regional financial center while depriving some consumers of credit they need," the task force found.
With that being the case, it continued, the choice is clear: "Amend the usury laws or watch the state's financial sector continue to curtail its activities."
The task force's findings were contained in a report to the policy committee of the Johns Hopkins University Metro Center.
The task force recommended that the Maryland legislature eliminate all specific numerical interest rate and fee limits contained in state codes and that current laws be replaced by provisions which state:
Charging unconscionable rates on credit of any kind should be prohibited.
Maximum interest rates imposed by all credit grantors should be periodically disclosed to a designated state agency charged with monitoring the rates and informing the public.
The task force suggests, among other things, that if usury codes are repealed there would be only modest increases in interest rates charged by retailers and financial institutions. For example, when New York eliminated its 18 percent ceiling on credit card interest, "rates generally stayed below 20 percent," the task force reported.
Repeal of usury limits would lead to increased availability of credit, the task force believes. Second mortgages, for example, would be easier to obtain, it suggested.
Finally, retail prices would be lower if there were no usury limits, the task force maintains. "If credit customers pay the full cost of their credit, merchants will not be forced to raise prices to offset their losses on credit sales," it contends.
"The point we're trying to make here is that usury limits have a negative impact on consumer credit as well," Jack C. Fisher, director of the Johns Hopkins planning and research center, explained in an interview.
Fisher acknowledged that this is a "very controversial issue," but it's inevitable, he added, that usury ceilings will be lifted anyway. "We're in a national market, and Maryland can't legislate and keep itself independent," he added.
In any event, "the real problem here is a psychological one," Fisher said of opposition to the proposal.
But in an election year, the issue will be a tough one for Maryland's legislators.
"I think there is going to be tremendous opposition to it in the general assembly, as there was last year," commented Thomas Bradley, president of the D.C. and Maryland AFL-CIO. Bradley is a member of the advisory commission of the state's department of economic and community development. He and Dominic Fornaro, Maryland's assistant secretary for labor relations, blasted the task force study when it was presented to the advisory commission last week.
"It's prepared by banking interests for support of banking legislation that will be before the the legislature," Bradley later charged during an interview. "I just think it's absolutely ludicrous to hold jobs of workers ransom to lifting the usury ceiling," Bradley continued.
Fornaro agrees that there should be "some relief" for business, but he is adamantly opposed to the usury proposal in its present form. "The banks claim they have to have it, but they're making a profit. I think it's wrong, and I'm opposed to it," said Fornaro.
AFL-CIO leaders say they will enlist the support of consumers in a letter-writing campaign to legislators if the task force's recommendation reaches the General Assembly.
In the meantime, Bradley has served notice on banks in Maryland that "if they want to play that kind of hard ball" by moving their credit card operations to Delaware, "then I will recommend that people not use their credit cards and that they withdraw their funds from those banks."