With little fanfare and no debate, the Maryland General Assembly's powerful Senate Economic Affairs Committee approved a bill last week that Senate leaders hailed as "a jobs bill." In fact, it was the most far-reaching banking deregulation legislation to reach the floor in years.
Drafted by Maryland's banking lobby, the bill would effectively deregulate the state's lending industry, making Maryland banking laws virtual blueprints of those in neighboring Delaware and Virginia.
The measure quickly was endorsed by the Senate presi-dent and two influential committee chairmen when the leg-islature convened in January. In February, Baltimore Mayor William Donald Schaefer said the bill was necessary for "economic development." And last week, as the committee prepared to vote, one senator joined the chorus, chiming: "Let's bring those jobs back to Maryland. Let's lift all the ceilings on interest rates."
A few years ago this scenario could hardly have been contemplated in Maryland's historically prolabor legislature, where the banking lobby has waged long-term and bloody battles to make incremental changes in the state's banking laws.
But now the climate has changed. Following sweeping legislative victories by the lending industry last year, the bankers came back for more in January. And in the name of jobs and economic development, the 188-member legislature seems likely this year to give lenders the laws they were begging for a half-decade ago.
"We think we can offer a climate in Maryland under the deregulation bill that is starting to lead us in a direction to be a commerce state," said Sen. Jerome F. Connell (D-Anne Arundel), the crusty chairman of the Economic Affairs committee, to the delight of lending industry lobbyists. "Most of the Senate now realizes that you can't let two states around you deregulate completely and bind the banks here."
The legislature's dramatic shift on banking legislation is partly the result of new economic realities. Maryland's four largest banks transferred their credit-card operations to Delaware last year to take advantage of less restrictive banking laws. The move cost Maryland 935 jobs and valuable tax revenues, and awakened fears of a similar exodus by the remaining institutions.
Gov. Harry Hughes, anxious to avoid losing Citicorp's CHOICE credit card division, which has 700 employes at its headquarters in Towson, has proposed legislation to allow annual membership fees on credit cards. Similar legislation was defeated last year.
"Last year we weren't able to convince people there was a problem," said Franklyn Goldstein, who is the lobbyist for CHOICE here. "We didn't have the facts to show that our argument did hold. Now we do. We never said to the governor we would leave. But we did say we have to be competitive."
Fear that banks and jobs would leave the state, sandwiching Maryland between deregulated Delaware and Virginia, is not solely responsible for the legislature's tame reception of new banking bills, however. Equally important is a political shift in the General Assembly, including the absence of several vehement bank opponents, who were defeated last year, and a changing attitude on the part of once-outspoken bank critics in the Hughes administration.
"We're off the high rhetorical plane of cosmic, philosophical contests now," said Attorney General Stephen H. Sachs. Although known as a strong consumer advocate, Sachs formed an alliance with the banking lobby last year to lead Hughes' fight for higher interest rates on consumer loans.
"The issues three or four years ago were fundamental," Sachs said. "There were questions like, 'Are the banks just greedy?' and 'Do we give them everything?' All of those discussions we all participated in rather gleefully. Now we're down in the trenches. We're dealing with details. It's not very glamorous."
Although there is general agreement that liberalization of existing laws is needed to allow Maryland's financial institutions to compete with out-of-state banks, the Hughes administration says the bankers' "jobs" bill is too broad.
Ironically, after raising the ire of consumer groups last year by supporting the banking lobby, Hughes and Sachs are now trying to persuade legislators to "prune the excesses" of this year's banking bill. Last month Hughes submitted his own "scaled-down" version of the bill that he says incorporates needed consumer protections.
"The banks have some merit in what they're saying, but it shouldn't mean they are entirely right. Their bill goes too far," said Sachs. "We think these consumer protections are of interest and are important for borrowers. We are the only voice right now for the consumer, and I'm proud of that voice. We have our tattered little ensign and we keep flying it."
Despite Sachs' and Hughes' hopes that the legislature will adopt consumer protections, politics may interfere.
Some legislators still blame Hughes and Sachs for the messy handling of last year's interest-rate bill. And Sachs' revival this year as a champion of consumers (along with his well-known plans to run for governor in 1986) has grated on some key legislative leaders.
"Last year we were on a yo-yo," said one House leader. "The governor's office changed their mind on an acceptable rate ceiling every day. And the attorney general's flip-flop on whether to support higher rates . . . raised specious questions about his credibility."
Economic Affairs Committee Chairman Connell, for example, is also known to be annoyed by the advocacy role of the attorney general's office. Connell, bluntly snubbing the governor, has refused to hold a formal hearing on Hughes' bill. When asked last week if he would allow his committee to vote on it, Connell chuckled and said, "I don't know."
Legislative leaders say Connell plans to let the bankers' bill that he cosponsored wend its way to the House, where delegates will have to decide whether to amend it to Hughes' wishes.
Meanwhile, the banking lobby insists that if its bill passes (it is expected to win full Senate approval this week), Maryland will be able to compete effectively in the region's financial market.
Maryland law, however, would still differ from Delaware and Virginia in two key respects: A 24 percent ceiling would remain on most consumer loans (although the banking lobby says the ceiling is high enough to constitute de facto deregulation) as would less favorable tax rates on lenders' profits.
Some skeptical legislators say that if the bill is approved this year the banks will return next year to ask for lower tax rates.
"I wouldn't hesitate to tell them the bankers that while I'm chairman I wouldn't support a reduction on taxes," Connell said in response to those fears. "I will not agree to reduce taxes on the banking industry."
One of the Senate's most ardent foes of banking deregulation was not convinced. "They will be back," Sen. Joseph Bonvegna (D-Baltimore) said. "They will be back a year from now."