The lending industry's campaign to abolish interest rate ceilings in Maryland today ran into angry opposition from labor and citizens groups, who joined 16 liberal legislators in branding the move "legalized loansharking."
The new coalition represents the first organized opposition to industry-backed legislation that would remove all interest rate ceilings on consumer loans and credit. Leaders said they hope to reverse the momentum behind the bill, which intensified last week with the surprise announcement of qualified support from Attorney General Stephen Sachs, a longtime consumer advocate.
"We want every politician in this state to realize that there's a hell of a lot more votes from borrowers out there than there are from lenders," said Tom Bradley, president of the Maryland and D.C. AFL-CIO and leader of the coalition. "The elimination of usury ceilings would be nothing more than legalized loansharking."
Although Sachs tied his support to the passage of broad consumer protections, including criminal penalties for lenders who charge "unconscionable" rates, Bradley and other coalition members argued that there is no stronger consumer protection than interest rate ceilings. They said they hope Gov. Harry Hughes and legislative leaders, who are expected to form a united front this week behind the Sachs proposal, will reconsider their support.
"I represent everyday citizens, and I think this will really shaft them," said Del. Idamae Garrott, a Wheaton Democrat. Several legislators in the group said they believe the present 18 percent ceiling on consumer loans and credit card balances may be too low, but they said they would prefer to raise the ceilings rather than remove them.
Sachs, who in the past advocated tighter state regulation of lenders, said he changed his position because he believes consumers cannot stop what he called the "financial revolution." Maryland banks now can move to states like neighboring Delaware that have deregulated the industry and then "import" the higher rates to Maryland consumers, Sachs said. His measure, he said, is an attempt to keep banks in Maryland and to subject them to stiffer consumer protections than Delaware's.
Bradley, speaking for the coalition, said he believes Marylanders will suffer more without interest rate ceilings. "We don't want the moneylenders setting the interest rates of this state," he declared in a fiery statement at a press conference announcing formation of the group, which includes 15 labor and civic organizations. The 16 legislators who joined with the group did not include any members of the General Assembly leadership.
Bradley's rhetoric reflected the politically explosive nature of the interest rate deregulation issue. Lenders who support abolition of the present ceilings concede that interest rates will rise if the measure passes. Many legislators who support the industry fear a backlash from angry voters in this election year.
"The real decision maker is John Q. Public," remarked veteran Sen. Harry J. McGuirk (D-Baltimore) "If he screams loudly enough, there will probably be a lot of legislators thinking of election year who'll defect pretty fast."
If ceilings are removed, interest rates on all installment purchases, second mortgages, credit card charges, small loans and car loans would be set by the market, rather than by the state legislature.