Maryland Attorney General Stephen H. Sachs, for two years the leading advocate of tighter regulation of the state's banking industry, is preparing to renounce his position and call for abolition of state-imposed ceilings on interest rates.
The turnaround by Sachs, who is viewed as a standard-bearer for consumers, removes the major political obstacle to a long and intense business community campaign to persuade the General Assembly to end Maryland's ceilings on consumer loans, credit card balances and mortgages.
"I'm the first to admit that what I'm doing this year looks in a different direction from my past positions," Sachs said in an interview today. He said that after months of studying the issue he was persuaded by the industry argument that federal deregulation policies have spurred a financial "revolution" that Maryland is powerless to stop. Unless Maryland lifts its interest ceilings, business leaders argue, local banks either will go out of business or move to other states, such as neighboring Delaware, which have abolished virtually all banking laws.
"This is a concession to financial reality," Sachs said. "The financial world is bigger than Maryland, and I'm now convinced that it's shortsighted and indeed counterproductive to fight it. We better grab ahold of as much consumerism as we can."
Sachs said that his proposal will include strong consumer protection measures, such as criminal penalties for lenders who charge "unconscionable" interest rates and for those who do not disclose rate increases to the public. But it basically will allow interest rates to be set by the market, not by state-imposed ceilings. The proposed "unconscionable" rate, which would become an unofficial ceiling, has not yet been set, Sachs said. Sources said that it is likely to be as high as 36 percent, or double the present ceiling on credit card balances and consumer loans.
"This makes it a lot easier for any politician to support a measure of this magnitude in an election year," said House Speaker Benjamin L. Cardin, who is among the supporters of deregulation.
"Politically vulnerable legislators can now get on board and say: If Sachs says it's okay, it must be okay for the consumer," said a high-ranking state official who has monitored the issue.
Sachs' position also is expected to influence Gov. Harry Hughes, who has not yet taken a stand on what has emerged as the most politically dangerous issue of this election-year session. Several politicians noted today that any increase in interest rates could affect virtually every voter in Maryland, providing fodder for the 1982 campaigns.
The governor is scheduled to meet with Sachs on the issue Friday, and has promised to decide on it early in the session. Hughes' aides said Sachs' position makes it "much easier" for Hughes to support an end to interest rate ceilings--a move the governor has said he supports but believes may be impossible to accomplish in an election year.
Legislative leaders and aides to Hughes said it now is likely that the entire General Assembly leadership, as well as Sachs and Hughes, will unite behind a "consensus" bill, in order to reduce any one politician's risk in supporting the controversial measure.
"This is the sort of issue that could bring out a lot of breastbeating and demagoguery and everyone wants to minimize his own exposure," said one Hughes aide.
Such a united front also would improve the measure's odds of passing, although several legislators noted that "anything can happen" in an election year. "The old saying goes: Politicians do whatever they want for the first three years. The fourth year is for the public," observed veteran Sen. Harry J. McGuirk (D-Baltimore), whose committee will rule on the issue in the Senate.
Despite the top-heavy support for relief for the state's lending industry, there is considerable opposition among rank and file legislators and citizen groups. "I talked to Sachs and I told him his position reminded me of the old argument that we've gotta burn your village in order to save it," said Del. Steven V. Sklar (D-Baltimore).
Tom Bradley, leader of Maryland's AFL-CIO, said that he is organizing a coalition of consumer groups, workers and the poor to protest the measure at an Annapolis "Solidarity Day." Bradley insisted he is not swayed by the recent announcement that three Maryland banks have applied to move their credit card operations to Delaware, along with about 2,000 jobs.
"They're using the jobs of their people as ransom," he said.