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Globe Editorial

In show of faith, banks should limit interest to 18 percent

April 16, 2010

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IF BANK of America were a state bank chartered in Massachusetts, the most it could charge on credit-card interest is 18 percent. That’s not chicken feed, but it is much less than the knee-breaker’s rates it and other nationally chartered banks get away with. Now the Greater Boston Interfaith Organization is trying to get the bank to honor the state interest cap — and it has persuaded State Treasurer Timothy Cahill to agree to divest some of the money the state keeps at the bank if it does not.

There are larger issues at play here, with Bank of America fearing an influx of bad customers if it were the first major bank to cut its rates, but the bottom line is that interest rates over 18 percent are destructive. The GBIO and Cahill deserve credit for attempting to force the issue.

Cahill has said that if Bank of America doesn’t capitulate, he will use his prerogative as treasurer to disapprove the bank as a repository for one state fund that is actually managed by Fidelity. Over time, Fidelity credit analysts would allocate the approximately $200 million now at Bank of America to other banks, “with zero impact on the fund’s rate of return,’’ according to James A. MacDonald, the assistant treasurer for cash management. Cahill has said it would only be fair to threaten the same action against other big banks whose credit-card interest rates exceed 18 percent.

Despite its 50,000 members and past successes in advocating for causes like health care reform, GBIO will have its work cut out in getting major banks to accept the state’s cap. At a meeting with GBIO representatives last week, Bank of America officials said they would stick with their current policies. Banks fear that if one takes the lead in lowering its rate it could end up attracting deadbeat customers.

From the consumer’s point of view, there is concern that tight caps on rates could force banks to deny or severely limit credit to some customers. But it’s not a bad thing to keep plastic out of the hands of those who are clearly not credit-worthy. And a reasonable cap on interest would help keep families out of bankruptcy court.

The GBIO and Cahill have begun a worthwhile campaign that could build support for the national solution: passage of a bill pending in Congress that would cap rates at 16 percent.

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