The banks of Maryland, already reporting hefty profits in a time of economic uncertainty, appear on the way to winning their most sweeping victory in years from the same legislature that has spent much of the last two sessions hooting them down as "extortionists" and "blackmailers."
The banks are asking the General Assembly to abolish all state controls on interest rates, a move that would inevitably lead to higher bills for consumers. The timing couldn't be stranger--it is an election year--but in the poker game known as Maryland politics, the long-vilified bankers are suddenly holding all the cards.
As always, they have brought to the battle the sophisticated lobbying network of an $18 billion industry--the unending visits to rural legislators from their hometown bankers, who often double as the local chamber of commerce chiefs; the elegant "informational" lunches hosted by longtime banking lobbyist William K. Weaver; the $1,000 contributions to campaign coffers of key legislators such as House Speaker Benjamin L. Cardin and Senate committee chairman Harry J. McGuirk; the smaller contributions to rank-and-file legislators who "share our philosophy," as Weaver puts it.
But this year, the bankers have an ace in the hole--the threat, already carried out by the three biggest Maryland banks, of moving portions of their operations to the probusiness haven of neighboring Delaware if they don't get their way. ("We're sick and tired of dealing with this legislature," said the president of one departing bank. "We're beyond the threat stage. We're gone.")
While some consumer leaders insist that Maryland is being bluffed, the specter of a mass exodus by the lending industry apparently has humbled many a former firebrand. Old populists and the forces of business still do not speak with one voice, but they are beginning to sound more alike, rallying yesterday around a proposed bill that would raise the present 18 percent consumer loan ceiling to 24 percent for retail stores, car dealers and credit cards and to 36 percent for banks and other lending institutions. Consider the lineup:
Gov. Harry Hughes. His aides said for months it was "unrealistic" to open the way for higher interest rates in an election year. But Hughes, urged to champion the interest rate issue as a display of leadership in the cause of economic development--a key plank in his 1982 platform--came on board last week."I have become convinced that in the interest of the state . . . this is a step we have to take," Hughes said.
Attorney General Stephen H. Sachs. A longtime consumer advocate who privately calls bankers "apostles of entrenched greed," Sachs said he now believes Maryland has lost the battle for low interest rates and must make the best of it by imposing strict consumer protections. Sachs was the sternest opponent of lending industry relief in the last two legislative sessions. This year, he is drafting the Hughes bill. "A change in attitude? Absolutely true and I'm proud to admit it," Sachs said. "I've learned a lot in the last year."
Speaker of the House Cardin (D-Baltimore). At the peak of last year's antibank frenzy, Cardin proclaimed: "The primary issue is that we must regain the ability to control and regulate this industry." Now Cardin supports total deregulation of the lending industry, a position he said he privately favored all along. Shown a newspaper clipping reporting his fiery statement of last session, Cardin winced. "Ooof, that's a bad quote," he said.
Senate President James Clark, a gentleman farmer from Howard County. "I'm an old free-enterprise man. I don't have any problem with it."
Assorted other advocates: Baltimore Mayor William Donald Schaefer, who controls most votes of the formidable city delegation; Baltimore County Del. Terry Connelly, who last year cursed at a bank president during a stormy hearing on rate relief; Del. Frederick C. Rummage (D-Prince George's), who is chairman of the House committee that must rule on the issue and who advocates total deregulation; Sen. McGuirk, chairman of the corresponding Senate committee, who is drafting a more restrictive proposal, but one that gives banks considerable latitude.
The consensus isn't everything the bankers wanted, but it still represents sweeping change compared with existing restrictions.
Arrayed against the bill's formidable supporters are only a handful of rank-and-file holduouts such as Baltimore Del. Steven V. Sklar, who calls press conferences to warn against "legalized loan-sharking" and hisses "sellout" at the swelling probank chorus.
The turnabout is in part a bow to convulsive national changes in the lending industry--such as Delaware's emergence as a "bandit state" for banks--that have made it difficult for individual states to control most interest rates within their borders. And Maryland is hardly alone. Almost every state in the country has relaxed or abolished interest rate limits in the last two years.
Even consumer groups have become somewhat sympathetic to lenders' pleas for rate relief on credit cards, recognizing the pressures of high infltion. But they generally decry the approach of abolishing ceilings or to lift them as high as 36 percent. David Greenberg, lobbyist for Consumer Federation of America, contends that Maryland is being lured into "a game of bluff. Every year another state can change its laws and the banks can come back and say some place else has become more attractive. Nobody wins except the banks."
The reaction of Maryland politicians is all the more striking in the context of the bankers' historic image in the General Assembly. State officials speak openly about the "bankers' obnoxiousness," and a Hughes' aide says he is nervous about "having it look like Harry is helping the big, bad bankers."
The bankers' main problem is an embarrassment of victories. In 1980, they successfully lobbied a rate relief bill with an assist from a friendly state bank commissioner, who granted a long-delayed charter to a struggling black bank days before the bill came up for a vote. With the charter granted, the black caucus switched from the "no" to the "yes" column on the bill, providing the margin of victory.
With legislators still railing about the bankers' tactics, Hughes signed the bill into law, only to have two Maryland banks announce days later that they planned to impose membership fees--in addition to the higher rates--on credit card customers. And then the bank lobby flew a group of friendly legislators to Bermuda for a summer conference. (The year before, the same group had been flown to Boca Raton.)
"They made a tactical error. They treated the General Assembly wrong. And they paid for it," Cardin said.
The 1981 session convened with populist, antibank rage ringing from the House and Senate floors. All bids for rate relief died in committees. By overwhelming margins, the House and Senate passed a ban on bank credit card membership fees. Angry legislators began calling Weaver "The Loan Ranger." Maryland emerged from the session with some of the most restrictive interest rate laws in the country. As Weaver recalled it, "Last year was just an unfortunate situation."
But since then, the banking lobby has so closely controlled the debate over interest rates here that dissenting views like those of national consumer spokesmen have scarcely received a public hearing.
The work began even before the 1981 session ended. It became clear, several bankers said, that the banks could not make it alone in a fight to do away with interest rate ceilings. Their high overall profits would cloud the argument that their credit card and consumer loan operations were being squeezed by Maryland's 18 percent ceilings. They needed the support of the entire business community. And they set out to get it.
Starting last fall, the bankers met with lobbyists for every industry in the state that depends on credit. One by one, other groups joined the push for total deregulation of the credit industry--the car dealers, the retail stores, the savings and loans, the furniture dealers, the credit unions, the installment sales stores, the small loan companies and Citicorp, owners of the CHOICE card. All were suffering from high inflation rates, and all were hoping for some relief in the 1982 session.
The lobbyists formed an ad hoc group, and selected Edward McNeal, the popular lobbyist for the major retail stores, as their spokesman. ("It wouldn't be logical for it to be Bill Weaver, with all the bankers' problems," said Frank Goldstein, lobbyist for CHOICE).
Several basic strategies emerged. To minimize political heat, the bill should not be tagged as a "bankers' bill," but as a business community bill, the lobbyists decided. And the issue should be cast as bigger than the banking industry--a question of credit availability and economic development.
Thus came the argument: Unless Maryland created a friendlier business climate, the lending industry would bolt to Delaware and elsewhere, draining Maryland of jobs and drying up the credit market for consumers and businesses.
The collapse of dozens of small loan companies in the last year was cited as evidence of the need for relief, as was the announced departure of the three big banks, First National Bank of Maryland, Maryland National Bank and Equitable Trust Bank. (The bankers acknowledge that only one other bank--Suburban Trust--has any plans to move to Delaware, but they still warn that Maryland will become a "branch state" for lenders and businesses unless it warms up to the financial community.)
This was essentially the conclusion of a recent study performed at Johns Hopkins University--a study that has since become a symbol of the permeating influence of bankers in the state's public life.
When Gov. Hughes asked Hopkins for an "objective" study of the interest rate issue, the school's Center for Metropolitan Planning and Research turned to one of its own--banker Robert Irving of the center's executive committee--to be the task force chairman. Irving helped select 24 men and women for the force, of whom 12 were bankers or businessmen tied to the lending industry--virtually a mirror image of the ad hoc lobbyists' group that was meeting at the same time. The Hopkins group called for total abolition of interest rate ceilings.
After the first few meetings, labor leader Tom Bradley, one of the few consumer representatives, resigned from the task force in protest. "The deck was stacked," Bradley said. "I was sandbagged."
"The governor wanted to know how to keep the banks from moving out of the state, so we thought the best people to ask were the people involved," responded William P. Coliton, chairman of the policy committee of the Hopkins center and president of the Chessie System Railroad.
The report was forwarded to Hughes' 19-member advisory commission on economic development, a business-boosting group that meets in a room decorated with Maryland promotional posters--including a picture of a giant carrot, accompanied by the entreaty: "Maryland, the incentives have never been bigger. Maryland offers a solidly probusiness attitude. And more. Come for the carrot. You'll stay for the greens."
The commission includes two members who participated in the Hopkins study--Coliton and a banker who served on the task force--but neither abstained from the commission debate. The wife of the president of Maryland First National Bank (herself an executive of Black and Decker) also serves on the commission and did not abstain from the group's overwhelming endorsement of the Hopkins study.
Hughes cited the Hopkins report as one of the key factors that persuaded him to support major lending industry legislation in an election year. "I would doubt that a highly reputable institution like Johns Hopkins University would be a part of issuing any report that might have some charge of being biased," he said.
The compromise bill proposed yesterday would create what is known as a "two-tier" ceiling, with the lower, 24 percent limit covering all creditors who sell merchandise--car dealers, furniture dealers, retail stores and credit cards. The higher, 36 percent ceiling, would apply to banks, small loan companies, credit unions and savings and loans and would govern all mortgages. It also includes new consumer protections such as a ban on compounded interest, a requirement for publication of all interest rate changes and for use of plain language in loan agreements as well as stiff criminal penalties for any violation.
Lenders, at first delighted by Sachs' and Hughes' support, have since started playing their cards close to the vest. They say the proposed consumer protections are too restrictive, and have begun lobbying other politicians for a looser bill. But the game is far from over, and Weaver and others acknowledge that things are looking better than they ever imagined in the angry days of 1981.
"There's cause for optimism, but it's still a very difficult and sensitive issue," McNeal said. "Legislators don't like to vote for interest rate increases. They think their constituents don't like it. And they're right."