- The Washington Times - Wednesday, March 12, 2008

ANNAPOLIS (AP) — The state Senate yesterday signed off on a preliminary version of a bill to shield state-chartered banks from a ruling by the state’s highest court that said charging penalties from some homeowners paying off loans early was illegal.

The ruling set up a potential class-action suit the banks fear could cost millions.

“All the evidence shows it’s a good product. Who doesn’t like this?” Sen. Thomas “Mac” Middleton, Charles Democrat, said of the bank practice of waiving closing costs for customers who agree to carry the loan for several years.

The ruling applied only to state-chartered banks. Banks with a federal charter are allowed to charge penalties from some customers who agree to hold refinancing loans a certain period but then seek to repay the loans early.

The dispute has become one of the most lobbied measures in Annapolis this year, with financial stakes high for both sides.

State banks say they’ll be put at a disadvantage if they can’t charge the fees. Bankers also argue that the ruling sets a dangerous precedent because the bank in the lawsuit was following regulators’ advice that the fees were within the law.

Lawyers on the other side include Peter Angelos, owner of the Baltimore Orioles, a lawyer representing a homeowner seeking the fees returned, plus interest. The lawyers argue the banks were violating state law when they charged the penalties and that to retroactively protect banks from lawsuits over the penalties is unfair.

“They want to change the law in the middle of the game,” said Sen. George W. Della Jr., Baltimore Democrat, who tried unsuccessfully to change the bill so that banks’ past actions wouldn’t be protected. “It goes against my grain philosophically.”

Mr. Della referred to intense lobbying on the measure and said the bank bill is “on a roll” because powerful banks want to save themselves from legal action over illegal charges.

“The big bankers in town don’t like what the law is, and they got caught,” Mr. Della said.

Both sides claim to have the interests of consumers at heart. The banks argue that homeowners benefit from having closing costs waived when they refinance. Lobbyists working against the bill argue it is a simple shield for banks wanting to avoid refunding penalties they collected in error.

The bill has already passed the House unanimously; a final Senate vote is coming up in the next few days.

Mr. Middleton, who sponsored the bill and argued for its approval, said failure to pass the bill would simply put state-chartered banks at a disadvantage to federally chartered ones.

“It’s a good bill, and Maryland consumers are going to be well-served. There’s no bad guy here,” he said. “They’re not ripping consumers off.”

The bank bill has the support of Gov. Martin O’Malley, a Democrat who is simultaneously pushing a separate measure to ban prepayment penalties in subprime-mortgage lending. Mr. Middleton said support of both proposals isn’t a contradiction.

“It’s easy to take this and tie this with the whole mortgage fiasco,” said Mr. Middleton, referring to an escalating foreclosure rate that has lawmakers talking about cracking down on lenders. But Mr. Middleton went on about the prepayment penalties in the bill approved yesterday, calling them “a legitimate cost associated with a loan.”

“If you think your consumers are better served and better protected by dealing with a Maryland-chartered bank, you ought to vote for this bill,” Mr. Middleton said.

The Senate also rejected an amendment that would have taken out a provision shielding banks if they follow the advice of state bureaucrats when they act. Even some supporters of the bill say they aren’t entirely happy to be siding with banks found in violation of state law.

“This bill gives me great heartburn,” said Senate President Thomas V. Mike Miller Jr., Southern Maryland Democrat. “I’m going to vote to make their sins correct, but it gives me great heartburn.”

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