The Maryland House of Delegates today passed a measure allowing banks to raise their interest rates on small loans -- the first in a series of sweeping measures that would raise the cost of consumer loans and virtually everything a consumer buys on credit.
The passage today of this measure-the key bill for the banking industry -- marked a reversal for the House which last friday, after a rancorous debate, killed the measure by a single vote.
But the measure's proponents -- including a committee chairman who told his colleagues Saturday, "We can ram this bill through" -- managed to revise the bill and turn 10 votes around, guaranteeing its victory.
The package of bills, if enacted by both the House and Senate and signed by the governor, would make furniture, appliances, cars, vacations and several other goods purchased on installments or charge cards more expensive.
The bills -- the most important legislation this session to affect consumers -- would, for instance:
Increase by $630 the interest on a $6,000 bank loan paid back over 3 years. Under present law, the interest is $1,175.
Boost by nearly $700 the interest paid over 4 years on a $5,000 loan granted by a car dealer to purchase a new vehicle. Under present law, the interest is about $1,800.
Add a maximum of $12 a year to the credit card finance charges consumers pay to retailers and banks.
Increase the cost of loans under $2,00 borrowed from finance companies. A $900 loan paid pack in a year for instance, would cost about $20 more than it does today. The bill approved today by an 82-to-43 vote in the House is the key bill for the banking industry. It would allow Maryland banks to charge 18 percent interest -- half again as much as the current rate -- on consumer loans of $3,500 or more. These loans generally are used for financing cars or home improvements.
But already, it appears, the measure will fail to meet the one consumer goal it was designed for -- opening up the currently shut-down market for such loans at many banks.
W. Holden Gibbs, the state banking commissioner who championed the measure earlier, has recently pronounced it, too little, too late."
Spokesman for Maryland National Bank, the state's largest banking institution, said last week that the bill "won't provide all the relief the banks are looking for. It won't necessarily increase our desire to make new loans."
Officials at Equitable Trust and Suburban Trust made similar assesements, although the Suburban spokesman said the bank probably could begin granting loans to its own customers under the bill's higher interest provisions.
All noted that the bill, even if enacted and signed by the governor, would not go into effect unitl July 1, and by that time the interest picture and their ability to make loans might change.
Banking industry lobbyist William Weaver has argued to legislators that the banks' costs -- because of the ever-increasing interest rates the banks themselves must pay for money -- have made it impossible to make consumer loans of $3,500 or more. The maximum interest allowed on these loans is now 12 percent, under Maryland law, Bank officials said this week that their institutions are now paying more than 16 percent for funds.
But the bill's lone lobbying opponent, the state Attorney General's office consumer protection chief, has countered that the banks may be due some increase, but that they have not justified the need for 18 percent. "The cost figures they've provided just don't show it. The 18 percent is, at best, a guess," said Assistant Attorney General H. Robert Erwin.
In a series of debates so rancorous they may have caused the bill's temporary defeat by a single vote last Friday, Del. Stephen Sklar (D-Baltimore) attempted to put a time limit on the interest rate increase. He argued with the bill's proponents that the 18 percent rate should automatically die in 1982, so the General Assembly could look at the industry's need for that rate again.
His attempts to amend the bill were defeated last week and again today when the bill's proponent brought their measure back to the House for another vote.
As the final vote was taken, Sklar told his colleagues that it proved, once more, "that when you've got economic adversity, the only one that gets squeezed is the little guy, while those with power, with influence, with lobbyists . . . can be insulated."
Sklar did manage to push through one technical amendment to the bill, meaning that the measure will have to go back to the Senate for approval. The Senate passed the bill in its original form by a 31-to-13 vote last month after what opponents there called one of the smoothest lobbying efforts of the session.
After today's vote, consumer lawyer Erwin noted that the higher rates may be needed to deal with the current monetary crisis, "We'll only know if consumers were hurt when we find out whether the rates go down as the monetary situation changes," he said.
Another provision of the banking bill passed today would allow banks, which issue such cards as Master Charge and Visa, and retailers with their own charge cards to get 18 percent interest on unpaid balances of up to $700.
The 18 percent rate is currently allowed only on balances up to $500; on balances higher than this amount the interest rate now drops to 12 percent. The increase would cost a consumer a maximum of $12 a year.
Another bill in the package, which has not yet won House approval would raise the interest rates charged on loans for new and used cars granted by auto dealers. The maximum allowable rate would jump from the current 16.5 percent ceiling to one of 21.5 percent.
Another bill would increase the cost of loans of less than $2,000 made by the 300 or so finance companies operating in Maryland.