Mass. usury law a weak weapon vs. big lenders

But Cahill continues to keep hundreds of millions of dollars in state and municipal funds at other financial institutions that exceed the 18 percent cap. The deposits are made from a $7 billion money market fund that Cahill oversees on behalf of Massachusetts municipalities and state agencies.

For example, JPMorgan Chase, which held at least $17 million from the Massachusetts Municipal Depository Trust fund as of the end of March, charges as much as 30 percent interest to customers who fall behind on their credit card payments.

Royal Bank of Scotland, which had more than $100 million of the Massachusetts deposits, charges as much as 28 percent for cash advances.

And a number of other banks that charge more than 18 percent, including American Express, PNC Bank, and US Bank, remain on a list of institutions eligible to receive funds from the trust.

Massachusetts law prohibits lenders of so-called open-end credit accounts, such as credit cards, from charging more than 18 percent in interest. Most credit card issuers and other lenders are exempt from the Massachusetts usury law, however, because they operate under a federal charter or are based in states with looser restrictions.

But community activists around the country have been targeting lenders over high rates and lobbying Congress to enact a national limit on interest rates.

The activists have also been asking politicians such as Cahill to apply pressure on the banks.

After meeting with the Greater Boston Interfaith Organization, Cahill decided to begin withdrawing $244 million from Bank of America, Citigroup, and Wells Fargo, because they declined to voluntarily limit their rates to 18 percent.

Cahill said he is still considering the council’s request to stop doing business with JPMorgan.

The interfaith group said it targeted the banks because they are among the nation’s largest lenders.

The treasurer, however, acknowledged the trust still works with other high-rate lenders.

“This is the first step in the process,’’ Cahill said of blacklisting the three big banks. “We’re hoping to send a message to those banks and other national banks that enormously high credit rates and interest charges just aren’t acceptable.’’

Bank of America, Citigroup, and Wells Fargo declined to talk about Cahill’s decision to withdraw funds from just them.

But Bank of America Massachusetts president Robert Gallery recently told the Globe that requiring banks to abide by an interest rate cap would force banks to “take credit away from otherwise qualified customers.’’ He said most of the company’s credit card customers pay less than 18 percent.

A Wells Fargo spokeswoman said the bank needs to charge higher interest rates to some riskier customers “to keep credit flowing.’’

James MacDonald, assistant state treasurer, said it would probably take six to eight months to withdraw the $244 million, because some certificates of deposit and securities have yet to mature.

Joseph Ridout, a spokesman for Consumer Action, a group based in San Francisco, said virtually every large US retail bank charges some form of interest rate that exceeds 18 percent. While he would prefer that the state blacklist any noncompliant bank, Ridout said starting with the top lenders is important.

“Even if it doesn’t include every single bank, it still sends a message,’’ he said.

So far, Cahill’s threat has not spurred any bank to cap rates. But the treasurer said it could make a difference if enough government agencies and institutions follow suit.

“It’s like throwing a stone in the water,’’ Cahill said. “We don’t know how many waves it will create. It may not create any.’’

One option the state has not pursued is steering money to Massachusetts-chartered community banks, that must follow the usury law. That would probably still pose an issue, however, because some local banks partner with national institutions to offer credit cards that carry 18 percent-plus interest rates for some customers.

The Massachusetts fund is administered by Fidelity Investments, which Cahill said makes most of the investing decisions. Like other money market funds, it typically holds relatively safe short-term investments, such as certificates of deposit, high-quality bonds, and other securities in a variety of major corporations.

Yet even Fidelity advertises credit cards, stamped with its brand name and logo, that charge more than 24 percent interest for cash advances. Fidelity said the cards are exempt from the Massachusetts law, because they are issued by a unit of Bank of America that is based in Delaware and has a national charter.

Cahill’s office said it had no plans to drop Fidelity as the trust’s administrator.

Todd Wallack can be reached at twallack@globe.com.