HARRY HUGHES, Governor

3981

May 29, 1984

The Honorable Melvin A. Steinberg

President of the Senate

State House

Annapolis, Maryland 21404

Dear Mr. President:

In accordance with Article II, Section 17 of the Maryland
Constitution, I have today vetoed Senate Bill 861 because it
represents an unwise and unnecessary departure in Maryland
consumer credit policy and lacks adequate consumer protection
features.

Before turning to the bill itself, a review of relevant
existing law and consumer credit policy is appropriate.

Enactment of the Credit Deregulation Act, Chapter 143 of the
Laws of Maryland of 1983, created two separate categories of
open-end credit plans which may be offered to Maryland consumers:
secured and unsecured plans. This distinction was developed in
order to segment these credit plans according to the level of
risk involved to the credit grantor in the extension of credit,
with the former representing little or no risk since an
authorized credit line is collateralized and the latter
containing uncertain risk. In recognition of the inherent risk
to the credit grantor involving unsecured revolving credit, three
specific additional fees, in addition to the charging of interest
at a rate not higher than 24 percent per annum, were permitted to
be imposed. These specific fees are annual charges ("membership
fees"), a transaction charge for each separate purchase or other
use, and a minimum billing period charge if there is an
outstanding balance for a billing period.

Importantly, a particular group of credit grantors, those
which are also sellers of goods or services, are limited to one
of the specific fees which may be imposed on a consumer utilizing
an unsecured open-end credit plan. The rationale underlying this
distinction is that a credit grantor classified as either a
seller of goods or services receives not only the benefit of
interest imposed on any outstanding indebtedness but also the
profit accruing from the sale of the goods or services.

Senate Bill 861 would permit a credit grantor to secure an
open-end credit card plan by any deposit or savings account, and
collect any or all of the specific fees currently permitted only
on unsecured accounts, in addition to the charging of interest.
In effect, the distinction between secured and unsecured credit
plans, predicated on the differing risk factors to the credit
grantor, would be eliminated.

There are two reasons for either not permitting any
additional fees to be imposed at all on secured open-end
accounts, or at the minimum, limiting to one, the additional fees