Massachusetts officials on Wednesday announced plans to move millions of dollars in state investments out of some of the nation's biggest banks to protest credit card interest rates.
State Treasurer Timothy Cahill said the state has removed Bank of America, Citi and Wells Fargo from a list of institutions approved for new state investments. Massachusetts, which is the only state to make such a move, is also beginning to divest $243 million in funds held at those banks, though the process could take up to six months.
"We want to bring some fairness into the issue," said Cahill, who is running for governor. "I don't think what we're asking is . . . out of line."
The announcement -- made at a raucous rally on Capitol Hill organized by the Metro Industrial Areas Foundation, a network of religious and citizen advocacy groups -- is part of a wave of consumer backlash over the banking industry's role in the worst financial crisis since the Great Depression. Congress has enacted sweeping credit card reforms that limit how and when issuers can raise rates and is in the midst of debating the creation of an agency dedicated to protecting consumer rights.
That has reignited advocacy groups that support creating a national usury law after a 1978 Supreme Court decision found that interest rate caps could apply only to state-chartered lenders. As a result, many banks moved their headquarters to states with looser usury laws, such as Delaware, allowing them to bypass limits set in other states.
Massachusetts law caps interest rates at 18 percent. In the fall, the Greater Boston Interfaith Organization began urging officials from the state Treasury department to tackle the usury issue. Last week, state officials met with officials from Bank of America, where Massachusetts has $231 million in investments, to request that it meet that cap for state residents. When the bank declined, Cahill said, his office decided it would shift the funds into other accounts. Massachusetts also has $9 million invested with Citi and $3 million with Wells Fargo.
Spokespeople for Bank of America and Wells Fargo said their firms regretted the state's decision. Bank of America noted that it charges interest rates of about 15 percent for about 70 percent of its customers. Citi did not return a call requesting comment. Credit card companies have said that they face higher costs from increased consumer delinquencies during the recession, which translates into higher interest rates for customers in good standing.
Sen. Bernard Sanders (I-Vt.) said Wednesday that he intends to introduce a 15 percent national cap on credit card interest rates through an amendment to the financial regulation reform bill being debated in the Senate. Six states, including Maryland, have considered bills this year that would have given community banks preference in providing government financial services, but none of them passed.
In Massachusetts, the state treasurer has sole authority over a $7 billion fund composed of contributions from municipalities; the investments at Bank of America, Citi and Wells Fargo are part of that fund. Cahill said the state still maintains other financial relationships with those banks, such as cash management.
Several other labor and religious groups also announced Wednesday that they plan to move money from large banks. Lutheran churches in Missouri said they moved $25 million in investments into community banks, while Civil Service Employees Association Local 1000 said it also would consider a shift.
"We've come to tell them all today: Time is up," the Rev. Hurmon Hamilton, leader of the Greater Boston Interfaith Organization, said at the rally Wednesday. "Move those dollars," the crowd chanted in response.