Helped by an intense lobbying campaign and a threat to pull part of its business out of the state, Maryland's banking industry celebrated a major victory this week when Gov. Harry Hughes signed into law a bill raising interest-rate ceilings to 24 percent on most consumer loans.
But the reaction of the state's chagrined banking industry suggests that it really achieved a hollow victory and that for all its efforts, it came away with only half a loaf.
The Maryland Bankers Association, which spearheaded the drive resulting in passage of legislation raising the interest-rate ceiling, is now bad-mouthing the law that apparently has backfired for it.
"There are some provisions in the bill that shouldn't be there," complained William K. Weaver, executive vice president of the bankers association. "I can't conceive that the governor would have any objection to repealing some of those provisions."
But Hughes, who risked the ire of consumer groups by supporting and eventually signing the bill into law, said the state's bankers "should let this work a while and see what happens.
"I'm disappointed that they are saying the bill is not enough," the governor said after signing the legislation.
Weaver recoiled at reports that bankers are dissatisfied with the new interest-rate ceiling of 24 percent. "That certainly didn't emanate from this office," he insists. "The 24 percent is deregulation for banks in today's economic environment."
Nonetheless, Weaver makes it clear the industry will press for repeal of some provisions of the law, which becomes effective July 1. Banks will have great difficulty complying with some provisions governing consumer protection, he maintains.
Compliance with those provisions will produce added costs for the industry and create an administrative headache, bankers predict.
Weaver complains, for example, that banks will have to notify customers whenever interest rates change and that an institution will be forced to draw up new papers for borrowers' signatures when that happens.
Joseph R. Crouse, Maryland's banking commissioner, agrees that many of the provisions are extremely complicated.
"I'll say there certainly is a need for clarification in a number of provisions of the law," Crouse said. "It really puts you in a tough position when the law goes into effect July 1."
In its haste to push the bill through the general assembly in the closing days of the last session, the banking industry apparently dropped the ball near the end by failing to digest the fine print. Indeed, Crouse and an official at one bank agreed that several provisions were drafted hurriedly and amended at the last minute.
"Some bankers weren't even aware of all that was written into the bill as it wound its way through the General Assembly," one official remarked.
Now that the law is a fact of life, the bankers association is attempting to correct the oversight by giving its members a crash course.
"We dished out a 77-page study spelling out how the bankers should comply," Weaver explained. "It has nothing to do with the 24 percent."
But apparently all of the state's bankers don't support the association's position. "I don't think it's wise for Weaver to cry over spilled milk at this point," one official declared.
"I get the impression that the banks that are bitching the loudest and whom Weaver is speaking for are those that don't have the option of going to Delaware or can't afford to," the same official added.
At the outset of the industry's quest last year for authority to charge higher interest rates, some institutions threatened to move their consumer credit operations to Delaware. And when it became clear that the General Assembly wouldn't allow banks to charge a fee for credit cards, two institutions set up bank-card subsidiaries in Delaware.
At least two other Maryland banks plan to move their bank-card operations to Delaware to take advantage of liberal interest rate laws.
One official, who asked not to be identified, declared: "Nobody will tell you for the record that they don't care about some of the provisions in the bill. After all, it's in the best interest of banking to present a unified front."
Meanwhile, he noted, some banks have the option of moving their entire consumer credit operations to Delaware if they decide the Maryland law causes too much of a problem.
In that scenario, at least four Maryland banks could make consumer loans by mail from their Delaware subsidiaries. And although Delaware has no interest-rate ceiling, the rates on those loans conceivably could be cheaper.
While Maryland banks have been given authority to charge up to 24 percent on most consumer loans, Delaware subsidiaries of Maryland National Bank and First National Bank of Maryland are charging customers between 18 and 19 percent.