Maryland Gov. Harry Hughes threatened today to withdraw his support for raising state interest rate ceilings unless the General Assembly reinstates several consumer protections recently axed by a House subcommittee.
The House panel proposed last week to raise the interest rate limit on credit cards, most consumer loans and second mortgages to 24 percent--an unprecedented boost of one-third over the current ceilings--while killing all but one of Hughes' proposed consumer measures.
Apparently piqued by the subcommittee's action, Hughes said today that the state should not grant such extensive relief to lenders without gaining extra control over industry practices. If the House adopts his proposed amendments, which have drawn heavy opposition from industry lobbyists, Hughes said he will make the bill a top priority for the second half of the legislative session.
The governor's support for the relief measure is considered critical in this election year session, since legislators say they have been flooded with calls from angry constituents concerned about an increase in interest rates. Maryland now limits interest rates on credit cards and bank consumer loans to 18 percent, and General Assembly leaders say they are reluctant to support such an increase unless Hughes joins them in a united front.
Hughes and legislative leaders say they have become convinced that the industry needs some relief, but they have yet to strike a consensus on how to provide it.
The Hughes amendments, now being drafted by Attorney General Stephen H. Sachs, would force banks, savings and loans and credit card companies to obey some of the stiff consumer laws that now apply only to small loan and installment sales companies.
They would ban balloon payments on consumer loans, restrict repossessions of consumer goods bought on credit, limit variable rates for loans and mortgages, and require extensive disclosures before lenders can refinance existing loans at higher rates. They would also forbid lenders from charging interest on the interest from a previous month's unpaid balance.
The proposed amendments are considerably less extensive than the consumer protections in Hughes' original proposal. Sachs, a longtime consumer advocate, drafted most of those measures, which included a requirement that lenders publish any rate changes in local newspapers and change all loan agreements from legal jargon to "plain language."
The scaled-down proposal, according to several officials, reflects a willingness by Hughes and Sachs to compromise with legislators, who have been more sympathetic to lending industry pleas for looser controls.