Retreating to the privacy of a third-floor office, a key subcommittee of the Maryland House today axed most of the new consumer protections proposed in Gov. Harry Hughes' ambitious financial industry relief bill.
The panel then drafted a substitute measure, minus the consumer provisions, that would set a new 24 percent interest rate ceiling for most forms of consumer credit, a boost of one-third over present ceilings on credit card balances, retail credit accounts and consumer loans from banks.
"We have scrapped the governor's bill. It's gone," said Del. Casper Taylor (D-Allegany), who chaired the meeting of nine members of the House Economic Matters subcommittee in a cramped office two floors above Taylor's more spacious quarters where the session was supposed to be held.
The subcommittee members originally had gathered in Taylor's office, but then disbanded, saying they did not know when or if they would hold what had been scheduled as a "public work session" on the volatile issue of interest rate deregulation.
Minutes later, the group quietly reassembled in the office of one of its members, Del. Terry Connelly (D-Baltimore County), and proceeded to deliberate on the bill. Discovered there by a reporter, the group agreed to open the meeting. Asked why the session was moved to Connelly's small office -- where delegates were forced to crowd onto a sofa, sit on tables and lean on bookshelves -- Taylor answered, "Because Terry had cold beer and I didn't."
The panel's proposal would restrict some interest rate ceilings more than the Hughes proposal. For example, the governor had proposed a 36 percent ceiling on consumer loans from financial institutions and a 24 percent cap on interest rates for retail credit.
Economic Matters Committee Chairman Frederick Rummage (D-Prince George's) said his subcommittee's proposal has the support of key House and Senate leaders, and is likely to pass. He said he would have favored total deregulation rather than the 24 percent limit, but believes it would be politically impossible to pass it in this election year. Delegates and senators say they have been flooded with calls from angry constituents opposed to the proposed 36 percent ceilings.
"This is what I consider a minimum bill but I think it's the maximum we can get passed in this session," Rummage said.
Still, lending industry lobbyists have said that the 24 percent ceiling is "effective deregulation" of interest rates for most banks, retail stores and credit card companies. Rummage, who has kept in touch with industry lobbyists, said "there's no reason why any segment of the industry can't live with this." He noted that credit card interest rates have stayed well below 24 percent in most states that have deregulated the industry.
The panel's action is the latest development in what has become the most politically explosive consumer issue of the legislative session. Many legislators say they believe the lending industry needs relief, but they are sharply divided between those who want to couple the relief with stiff consumer protections and those who advocate full deregulation.
Hughes' bill, partly drafted by Attorney General Stephen H. Sachs, a longtime consumer advocate, constituted a sweeping rewrite of present lending industry laws, which included a wide variety of new protections: It would have required lenders to publish any increases in existing interest rates, to use "plain language" rather than legal jargon in credit agreements, and to do away with hidden charges so that interest rates would reflect the full charge to consumers.
The new proposal basically leaves present law intact except to raise existing ceilings. It includes only one of the new consumer protections Hughes had proposed.
"I personally believe that all that consumer protection jazz in Hughes' proposal was just that, jazz," said Taylor. "My basic feeling is we're already consumer protected enough in Maryland. The reason we turned down the governor's bill was the 36 percent, not the consumer protection."
The panel's measure, which Rummage said he plans to introduce tomorrow, would do away with the state's ban on credit card membership fees--a concession to the banking and retail merchants lobbies-- but only if the fee is deducted from interest paid by consumers. Under the proposal, the fee would be assessed against those credit card customers who now "get a free ride," avoiding all interest payments by paying their bills in the first 30 days.
The one Hughes-proposed protection for consumers retained in the bill would prohibit charging more than the present 18 percent interest limit on balances that existed before July 1, the date the higher rates would take effect.
The subcommittee proposal would exempt two industries--used car dealers and the state's troubled small loan companies--from the 24 percent limit. Small loan companies, now allowed to charge 33 percent interest on the first $500 of a loan, would be allowed to charge that rate on the first $1,000 under the new proposal, and 24 percent on all amounts above $1,000. Car dealers would be allowed to continue charging 27 percent interest on loans for cars that are more than two years old, as present law provides.
The panel also proposed a three-year sunset provision on its measure.
Sachs said he was disturbed by the committee's decision to scrap all the consumer protections he had proposed, but added that he is also "delighted" that the committee has decided against pushing for total deregulation of the lending industry.
"To the extent that this means the death of the-sky's-the-limit approach, I think that's teriffic," Sachs said. "But obviously, I have concerns." He and Hughes have both said they fear that setting a 24 percent ceiling will encourage lenders to raise rates to that level rather than to compete to keep rates low.
The governor declined comment on the committee's action except to say through a spokesman that he "has agreed to discuss the proposal."