Last Tuesday night, four of the state's most influential banking executives traveled here to argue their side of the legislature's heated banking regulation debate to three members of the House committee responsible for the issue, not in a hallway or committee chamber, but in the exclusive dining room of the Annapolis Yacht Club.
There, over seafood dinners paid for by the bankers, House Economic Matters Committee Chairman Fred Rummage (D-Prince George's), Vice-Chairman Casper Taylor (D-Cumberland) and Del. John Pica (D-Baltimore) heard why the bankers do not want the legislature to lower interest rate ceilings or outlaw credit card membership fees, as Attorney General Stephen Sachs and Senate leaders have proposed.
The next day, Rummage appointed a new subcommittee to study the credit and interest issue that his former banking subcommittee chairman charged is "stacked for the bankers." And the powerful committee chairman took the position that the General Assembly should not attempt to lower interest rates at all, and should allow credit card fees under certain circumstances.
Rummage said the dinner with the bankers "did not change the ideas I already had about what I would like to see" in credit and interest legislation this year. But the bankers, who were back again today to repeat their arguments to the full Economic Matters committee, say it is their rapport with Rummage's committee that gives them the best chance to derail a move toward tightened regulation of Maryland banks.
The regulatory fever is mounting in the wake of a recent state court ruling allowing federally insured banks to charge 33 percent interest rates and membership fees to credit card users. Last week, the Senate passed with only one dissenting vote a bill outlawing credit card membership fees.
"I think we really have to be careful that we don't deliberately create an unfavorable climate that would cause banks to leave Maryland," Rummage said. "But I don't think we should go overboard the other way."
Attorney General Sachs, who led off the testimony at today's hearing, took the opposite view from Rummage, urging the committee to back legislation that would give the state power to control interest rates and credit operations of the banks within its borders.
"We're talking about the matter of a state's control over its own affairs," Sachs told the committee. "You're dealing with an industry that has inundated us and entreated us to come on in to the plastic world. And the burden of their overmarketing should not fall on the people who came in, as invited."
Sachs announced that he will appeal the state court ruling that triggered the interest rate controversy "as promptly as possible." In that ruling, a Baltimore Circuit Court judge said that federal banking law and higher court rulings now allow federally chartered banks in Maryland to charge the same rates on credit card balances as small loan companies charge on loans of comparable size.
Sachs proposed that the legislature exempt Maryland from the 1980 federal bank deregulation act, and regain the authority to control interest rates charged by state banks. This would not directly affect the rates charged by national banks, but Sachs argued that the natural banks would be forced to charge lower rates in order to compete with their state-chartered counterparts.
Sen. Harry McCuirk (D-Baltimore), who chairs the Senate committee that handles banking legislation, said today he plans to introduce the bills Sachs suggested in the Senate.
Bankers who testified today said those bills would be potentially ruinous to their credit operations, which they said are already losing money. They warned that tough regulations on state banks in Maryland would lead banks to desert the state system to become national banks and eventually would drive all banks to states with less restrictive laws.
Rummage said he agreed, and added that the legislature therefore could lower interest rates only by lowering the 33 percent fee allowed small loan companies, which he said "will drive the small loan companies out of business." Instead, he said, the legislature should consider raising allowable interest rates for savings and loan companies and retail credit operations, which are still limited by the 18 percent interest ceiling set by the legislature last year.
Not all the members of the committee agree with Rummage's views, and some were charging that Rummage reorganized his banking subcommittee so it would not oppose him.
Last year, Rummage appointed Del. Charges Smith (D-Frederick) head of a banking subcommittee that originally was charged with monitoring interest rates, but disbanded the panel last fall. When a new subcommittee was appointed last week, it was chaired by Del. Frank Komenda (D-Prince George's), a close ally of Rummage, and was entirely different from the previous group.
Smith, who turned down a chance to be on the new subcommittee after seeing its membership, said Rummage had reorganized it "so he could control it."
"Our subcommittee would have voted in favor of the Senate bill [prohibiting credit card fees]," Smith said. "But this one is stacked for Rummage and the bankers. It will do what Rummage wants."
Rummage responded that the two subcommittees had "two entirely different subject matters to consider" and there was no reason to keep the same members. "I try to distribute the responsibility among all members," he said. "It has nothing to do with my views."