Bill Lifting 18% Lid on Retailer Interest Passes

The Assembly, on a bipartisan 49-22 vote, passed and sent to Gov. George Deukmejian on Monday a bill strongly opposed by consumer groups that would remove the 18% ceiling on interest rates retail stores are permitted to charge their credit card customers.

Interest charged on bank credit cards, such as Visa and MasterCard, is not regulated by the state and would not be affected by the bill.

Sponsored by big retail outlets, the legislation would be in effect for a three-year trial period, allowing retail stores to charge whatever interest rate the market would bear.

Backers’ Argument

Proponents argued that deregulation would increase competition among retailers and ultimately work to the benefit of consumers.

“The artificial (interest) rate ceiling means some consumers can’t get the credit they need,” said Assemblyman Frank Hill (R-Whittier), who carried the measure on the lower house floor. “Retailers are forced to deny credit and increase prices to recover losses.”

But opponents predicted retail stores would jack up the maximum interest rate to 21%, which would cost consumers an estimated $150 million annually in higher interest charges. The estimated total increased cost to consumers over the three-year period would be $450 million, they argue.

“This is the worst consumer bill of the year,” charged Assemblyman Lloyd Connelly (D-Sacramento).

“This a reverse Robin Hood bill,” added Assemblyman Rusty Areias (D-Los Banos). “We are taking from the poor and giving to the rich.”

The bill, which was introduced by Sen. Ralph C. Dills (D-Gardena) on behalf of the California Retailers Assn., previously passed the Senate by a 26-12 vote margin.

After the Assembly vote, consumer groups called on Deukmejian, who is attending the national governor’s conference in Cincinnati, to veto the measure.

“We weren’t surprised that the Assembly passed the bill,” commented Carol Evans of the Consumers Union. “It’s another example of a special interest group getting what they want as usual. Now, it’s up to the governor to veto the bill, which would be consistent with his protection of consumers in the past.”

Last year, Deukmejian vetoed a bill that would have extended until Jan. 1, 1991, a temporary increase--to 19.2%--that the Legislature had authorized in the maximum retail credit card interest rate. The governor said that veto, which allowed the interest rate to drop back to 18%, would save Californians as much as $72 million a year.

Prospects Unclear

A Deukmejian spokesman, press secretary Kevin Brett, said the governor has “no position” on the deregulation bill at this time. Brett also declined to predict whether it would be signed or vetoed.

The current 18% limit applies to unpaid retail credit card balances up to $1,000. A 12% rate is charged on anything over that amount.

At the end of the three-year trial period called for in the Dills bill, the legislative analyst’s office would be required to submit a report to the lawmakers on the outcome of deregulation.

Sixteen other U.S. states, including New York, have deregulated the maximum interest rate on retail credit cards and none have repealed it, Hill said.

In lobbying for the bill, California’s six largest department store chains argued that they are losing money on charge accounts. The six--May Co., Robinson’s, Carter Hawley Hale, Montgomery Ward, Mervyn’s and Macy’s of California--reported collecting $312 million in finance charges in 1986 but said they spent $407 million administering the charge accounts.

Thirty-two Republicans and 17 Democrats voted for the legislation; 21 Democrats and one Republican voted against it.