Maryland Laws Update for Financial Services

All legislation becomes effective October 1, 2001, unless otherwise shown.

PRIVACY

Maryland Insurance Administration-Adoption of Regulations, HB 362-Chapter 469 (effective July 1, 2001). This law requires the Maryland Insurance Administration to adopt regulations implementing the federal consumer information privacy provisions of the Gramm-Leach-Bliley Act. It requires that the MIA's regulations be consistent with the model privacy regulations adopted by the National Association of Insurance Commissioners. The MIA's privacy regulations may not go into effect prior to January 1, 2002. Even without these regulations, insurance brokers, agents, and companies must comply with the Gramm-Leach-Bliley Act privacy provisions. Please call if you have any questions in this regard.

Electronic Transactions Protection Act, HB 14-Chapter 440. This law establishes an Electronic Transactions Education, Advocacy, and Mediation Unit within the Maryland Division of Consumer Protection in the Office of the Attorney General. The purpose of the unit is to "protect the privacy of individuals' personal information" and to protect against unlawful conduct in electronic commerce. The unit is modeled after the Health Education and Advocacy Unit that exists in the Consumer Protection Division of the Office of Attorney General and will process complaints, investigate, and prosecute potential privacy violations and other unlawful conduct. Specifically, the unit may receive complaints regarding violations of stated privacy policies. There is no exemption for depository institutions from oversight and action by this new Unit.

Telephone Solicitation-Caller Identification Blocking, SB 79-Chapter 576. This law makes it a crime for telephone solicitors to intentionally block Caller ID through the use of any method or device. Federal, State, and local government units are exempt.

LENDING

Real Property-Recordation-Releases of Mortgages and Deeds of Trusts, HB 632-Chapter 492. This law requires the holder of a residential mortgage or deed of trust loan to furnish the borrower with evidence of loan payoff and to release any mortgage or deed of trust securing the loan within a reasonable time after the loan is paid off in full. The holder may not charge the borrower for preparing the written release. The holder must either record the release or send it to the borrower for recording along with a notice disclosing where the release should be recorded and the estimated recording fee. If the holder records the release, the holder may collect, in addition to the government recording charge, a $15 fee from the borrower. Holders of residential mortgages should consider whether and how to implement this new fee.

Real Property-Mortgages-Perfection of Security Interest, HB 1434-Chapter 561 (effective July 1, 2001). Under revised Article 9 of the Uniform Commercial Code, a security interest in a mortgage is perfected by filing a financing statement in the appropriate UCC records. Chapter 561 changes Maryland real estate law, which formerly provided that a security interest in a mortgage is perfected by recording an assignment in the land records. If a security interest in a mortgage attached and was perfected before July 1, 2001, in accordance with former law, the interest continues to be perfected without the need for any additional filing either in the land records or under Article 9.

Uniform Commercial Code-Article 9, SB 610-Chapter 408 (effective July 1, 2001). Chapter 408 makes technical amendments to Revised Article 9 of the Maryland Uniform Commercial Code passed by the General Assembly in 1999. These amendments make Maryland's version of Article 9 generally the same as the uniform version, with some differences, and conform other articles of the Annotated Code of Maryland (such as the Motor Vehicle Article and the Natural Resources Article) with revised Article 9.

Business and Economic Development-Maryland Small Business Development Financing Authority, SB 789-Chapter 172. The Maryland Small Business Development Financing Authority (MSBDFA) now has the authority to assist small businesses that cannot get adequate business financing on reasonable terms through normal financing channels because they do not meet financial institutions' credit criteria. This law also increases from $600,000 to $1 million the maximum amount payable by MSBDFA under its guarantee for a long term loan made by a financial institution.

ELECTRONIC TRANSACTIONS

Maryland Uniform Electronic Transactions Act-Scope, HB 519-Chapter 486 (effective June 1, 2001). The federal Electronic Signatures in Global and National Commerce Act (E-Sign) was enacted after passage of Maryland's UETA. Chapter 486 attempts to make Maryland's UETA consistent with the federal law.

Electronic Transactions Protection Act, HB 14-Chapter 440. See review under "Privacy."

INSURANCE AND OTHER REGULATED BUSINESSES

Insurance Producer Licensing Act, SB 576/HB 898-Chapter 731 (effective July 2, 2001). This law (bills were identical) makes three major changes to the Maryland Insurance Code. First, the legislation eliminates for the most part the distinction between an insurance agent and an insurance broker, both of which are now referred to as an "insurance producer" for which an insurance producer's license is required. Second, the legislation narrows the scope of activities for which a license is required to the "sale," "solicitation," and "negotiation" of insurance contracts, which terms are now specifically defined. Under prior law, the activities that required a license were not defined and almost any non-clerical activity related to the offer or sale of insurance triggered licensing. Third, the legislation changes the requirement that, to qualify for a license, a business entity must be "primarily engaged" (i.e., 51% of business activities) in the insurance business. Now, a business entity must simply designate a licensed insurance producer to act as the entity's principal contact.

Maryland Insurance Administration-Adoption of Regulations, HB 362-Chapter 469 (effective July 1, 2001). See review under "Privacy."

Unsecured Closed End Credit Regulation-Credit Services Businesses-Study Commission, SB 882-Chapter 630. This law prohibits a licensed "credit services business" from assisting consumers to obtain extensions of unsecured, closed end credit at an interest rate greater than the interest rates permitted by Maryland law.

Collection Agencies-Exemption from Regulation, HB 1403-Chapter 558 (effective June 1, 2001). The Maryland Collection Agency Licensing Act required debt collectors to be licensed. This law creates a new exemption for persons who collect debts for affiliates, as long as collecting debts does not comprise more than 50% of the total business activities of the person and certain information is filed with the Maryland Collection Agency Licensing Board.

State Commission of Real Estate Appraisers and Home Inspectors, HB 379-Chapter 470. This law creates a new State Commission of Real Estate Appraisers and Home Inspectors (formerly the State Commission of Real Estate Appraisers) that will be responsible for licensing and regulating home inspectors, as well as real estate appraisers. This law also provides for the establishment of a code of ethics and standards of practice for licensed home inspectors, licensing requirements, education requirements, disclosure requirements and civil and criminal penalties for violations.

Real Estate Appraisers-Qualifications of Applicants for Licensure or Certification-Trainees, HB 911-Chapter 282. This law requires an applicant for a real estate appraiser's license or certificate to have at least 2,000 hours of work as a real estate appraiser trainee under the supervision of a licensed or certified appraiser.

DEPOSITORY INSTITUTIONS

Maryland Individual Development Account Act, HB 378 - Chapter 372 SB 311-Chapter 373 (effective July 1, 2001). This law (the bills were identical) requires the Maryland Secretary of Department of Human Resources to establish a program to encourage saving for education-related expenses, home purchase, long-term home repairs, or small business capitalization through government matching funds. Depository institutions who hold savings accounts subject to this program have no greater duties or responsibilities for these accounts than other savings accounts.

Financial Institutions-Credit Union Law Modernization and Other Credit Union Law Reforms, HB 574-Chapter 669. A corporate fiduciary that is a trust company may attribute the capital and surplus of its parent corporation for the purpose of qualifying as a fiduciary with respect to a capital requirement in any court order, statute, regulation, or writing, if the parent corporation has its principal office in this State and the corporate fiduciary is a wholly owned subsidiary of the parent corporation. A successor fiduciary may be replaced if there is an objection regarding the successor's qualifications and its qualification is dependent on attributing the capital and surplus of its parent corporation.

Intestate Succession-Abandonment or Failure to Support Minor Child, SB 173-Chapter 582. A surviving parent is prohibited from inheriting by intestate succession from his or her minor child if the parent abandoned the child or willfully failed to contribute to the support of the child for at least three consecutive years immediately preceding the death of the child or for the life of the child, whichever is less. This law only applies to an estate of a minor child who dies on or after October 1, 2001.

Maryland Uniform Transfer-on-Death Security Registration Act-Trust Companies, SB 373-Chapter 379. The Maryland Uniform Transfer-on-Death Security Registration Act now includes securities held by trust companies not acting as a fiduciary among securities that can be transferred upon the death of the owner directly to a beneficiary designated by the owner.

GENERAL CORPORATE

Investment Companies-Directors, SB 264-Chapter 31 (effective June 1, 2001). In 1998, changes in Maryland law were enacted in response to a court decision that called into question the independence of mutual fund directors who serve on multiple boards of funds managed by the same investment adviser. The 1998 law provided that a director of an investment company who is not an "interested person" under the federal Investment Company Act of 1940 is deemed to be independent and disinterested when acting as a director of the investment company. Because of legal challenges regarding whether the 1998 law was enacted in violation of the Maryland Constitution's "one subject rule," the 2001 General Assembly enacted Chapter 31, which covers the same subject matter as the 1998 law but in a separate, freestanding bill to remove any doubt as to the validity of the law.

Dishonored and Bad Checks-Collection Fee, SB 131-Chapter 579. This law increases the amount of the collection fee, from $25 to $35, for which the drawer of a dishonored check is liable to the holder if the check has not been paid within 30 days after the holder has sent a notice of dishonor. This liability is now mandatory. It was previously discretionary. This change does not apply to bad check fees charged in transactions subject to Title 12 of the Commercial Law Article (i.e., the Maryland credit laws), which continue to limit the bad check fee, for the most part, to $15 after second presentment.

Recordation and Transfer Tax-Transfer from Real Estate Enterprise to Limited Liability Company, SB 18-Chapter 573 (effective July 1, 2001). This law extends tax-free benefits to limited liability company conversions involving businesses engaged primarily in buying, selling, leasing, or managing real property, where that property is held by husband and wife as tenants by the entirety. Prior to this law, the tax exemption for transfers of real property to a LLC was limited to a Maryland or foreign general partnership, limited partnership, and proprietorship, and the exemption did not apply to property held as tenants by the entirety. All real property owned by the individuals as tenants by the entirety and used in the business of buying, selling, leasing, or managing real property must be transferred to a single limited liability company.

If you have any questions about these laws, or need help implementing them, please call our attorneys in the Financial Services Group:

Andy Bulgin, 410-576-4280
D. Robert Enten, 410-576-4114
Peter B. Rosenwald, III, 410-576-4193