3982

VETOES

which may be imposed.

First, the creation of a separate category for secured
open-end credit plans where the collateral is a cash deposit is
without merit. The fact that the secured amount would be
forfeitable satisfies the current definition and intent of a
secured credit account, which Senate Bill 861 does not repeal.
Clearly the absence of the risk of default to the credit grantor
under the proposed credit arrangement is compatible with the
current prohibition on the imposition and retention of any
additional fees.

Second, the proposed secured open-end credit arrangement
embodied in Senate Bill 861 would eliminate the current
distinction between offering secured or unsecured credit to
consumers, except of course, the requirement that consumers
provide collateral in the form of a cash deposit. In both cases,
any or all three of the additional fees could be imposed.
However, this new credit arrangement seems more analogous to the
special category referred to above where only a single additional
fee may now be imposed when the credit grantor is also a seller
of goods or services. In each instance an additional profit
mechanism is present: a seller of goods receives, in addition to
interest, the profit from sales; and a bank, for example, uses
the secured deposit for lending or investment purposes to
generate additional profit, in addition to interest charges
received.

Another possible consequence, perhaps unintended, which
could occur under Senate bill 861 is that credit grantors that
are currently limited to a single additional fee on open-end
credit accounts could secure either directly or indirectly some
or all of these accounts and avail themselves of all three
additional fees. Clearly, this would circumvent the intent and
reasoning underlying the restriction presently in Maryland law.

In my view, the discretion to impose all three of these
additional fees, as proposed in this legislation, is unnecessary
as well as excessive.

Furthermore, important consumer protection features are
either omitted or not clearly stated in the bill. Senate Bill
861 provides that the deposited security earn "not less than the
highest interest rate allowed by applicable State or federal law
if this rate is stated" (emphasis supplied). The Attorney
General has advised me that the quoted language is ambiguous. It
is unclear whether the word "stated" applies to State or federal
law or to the depositor's agreement. This leaves it uncertain
whether any interest need be paid at all to Maryland credit card
account holders on their deposits or savings accounts used to
secure their credit plans. Notwithstanding the interpretive
ambiguity identified by the Attorney General, the expiration of
certain federal interest rate requirements in 1986 makes clarity
on this issue all the more important.