Maryland's banking industry is backing the wrong horse in a race that is being rigged in favor of predatory lenders.
Despite the banking industry's apparent solid support of a credit deregulation bill that is before the General Assembly, some bankers have expressed concern privately about being linked in the public's eye with loan sharks.
Lobbyists for Maryland's banking industry say the legislation is necessary to save jobs, but individual bankers say they simply want to be competitive with banks in the neighboring states of Delaware and Virginia, where banking laws are not as restrictive.
A sweeping deregulation bill passed by the Maryland Senate last week would eliminate vital consumer protection measures affecting loans and credit card transactions in the state.
For example, one of the bill's provisions would allow lenders to charge unlimited fees, points and finders' fees, above the state's 24 percent interest-rate ceiling.
Deputy Attorney General Eleanor M. Carey maintains that the provision would legalize loan-sharking. Permitting lenders to charge unlimited fees "bothers us because we don't want to see little people lose their houses," Carey says. Already, the attorney general's office is suing a mortgage broker who is alleged to have charged a borrower 40 percent of a loan's face value.
Carey says experience shows that many unscrupulous lenders get around prohibitions against unlimited fees by inducing consumers to sign affidavits stating that they are obtaining loans for commercial purposes. Nothing in the current bill would eliminate that practice, and the attorney general's office favors amendments that would provide more protection for consumers.
One Maryland bank official worries about "loan sharks lobbying for these undesirable provisions" and, although he acknowledges that there are a "lot of forces lobbying" for the bill, he adds that there is "a hell of a lot of sleaziness pushing it."
"I don't want to get in that boat," says Citizens Bank of Maryland Chairman Alfred H. Smith, apparently agreeing with that characterization. "The only relief we would look for is the same kind that banks in Delaware and Virginia have. The rest is window dressing, and a lot of people are jumping on the bandwagon."
Although some bankers may be uncomfortable about assuming a role as ally to loan sharks, the industry's chief lobbyist in Annapolis takes a different view.
"There's nothing in that bill at all that bothers me," declared William K. Weaver, executive vice president of the Maryland Bankers Association. "I think we would be hard-pressed and ill-advised to say that we don't want competition from other lenders."
Weaver said he doesn't understand what all the fuss is about among consumer advocates who warn of loan-sharking if fees aren't capped at reasonable limits. "I think that's totally ridiculous," Weaver said of the loan-sharking charges.
"To say we're going to penalize legitimate financial institutions because some people might abuse the law would be wrong," says Weaver, who believes the marketplace will curb excesses.
What's interesting about all this is that nobody is contending that profits are being squeezed by unrealistically low interest ceilings on loans and credit card transactions.
Weaver acknowledges that the current 24 percent interest rate ceiling is "tantamount" to deregulation.
What's more, a Maryland banking official observed that deregulation of credit card activities is a moot point now that the 24 percent interest ceiling is in effect. Moreover, four of the state's banks have moved their credit card divisions to Delaware, which has more liberal banking laws.
Although advocates of complete deregulation claim that other banks will follow, Smith demurs. "We don't want to have a club over the legislature's head threatening to leave the state," he said. "I think that's a bad philosophy."
But Weaver insists that credit deregulation is important because "it means jobs for Maryland." The state lost 935 jobs last year when the four banks established facilities in Delaware, he contends.
To be sure, the four banks have hired Delaware residents to fill some jobs at their facilities in that state. But officials at each of the banks say employes who elected not to transfer to Delaware were reassigned to other jobs in their Maryland operations.
Indeed, one bank official implied that Maryland banks probably would establish some kind of presence in Delaware regardless of the regulatory climate in Maryland. "It makes a lot of sense to establish a relationship and an image" in Delaware, because the chances are that interstate banking will be approved initially on a contiguous-state basis, he explained.
Ironically, the credit deregulation bill "is set up to let an out-of-state bank come into Maryland," ensuring more jobs for the state, Weaver allowed.
If bringing jobs to Maryland is the real motive for pushing credit deregulation, then leaders of the state's banking industry ought to focus on that goal and not sully the industry's image by giving the loan-shark lobby a free ride.