Some of these new laws may affect procedures or forms and may require action to be taken. We have highlighted these laws by our Action Alerts.
Credit Regulation, HB 649-Chapter 532 (various effective dates). While this law addresses one subject - extensions of credit - it has two distinct parts. First, the law establishes a State preemption as to most credit law provisions. Under this part, only the State (and not counties or cities) may enact laws that regulate extensions of credit made by financial institutions. This part protects lenders from different local lending standards. Second, this law imposes new consumer protections on certain high cost residential mortgage loans: loans that are 1 percentage point less than the comparison percentages for loans covered by the federal Home Ownership Equity Protection Act (HOEPA). If a lender makes a "Maryland covered loan," the lender may not finance single premium credit insurance as part of the loan, may not make the loan without giving "due regard" to the borrower's ability to repay, and must recommend that the applicant seek home buyer education or housing counseling. The preemption takes effect June 1, 2002, while the rest take effect October 1, 2002.
Action Alert: Residential mortgage lenders must test their loans for coverage under this Maryland law when testing for HOEPA loan coverage. If testing reveals that the loan is a "Maryland covered loan," then the new consumer protections apply. Residential mortgage lenders must test their loans for coverage under this Maryland law when testing for HOEPA loan coverage. If testing reveals that the loan is a "Maryland covered loan," then the new consumer protections apply.
Uniform Commercial Code - Article 9, SB631- Chapter 477 (effective October 1, 2002). Revised Article 9 of the Uniform Commercial Code makes most property available as collateral by making contract terms prohibiting assignment as collateral ineffective, and even making laws or regulations that prohibit assignment, or require consent, ineffective to prevent the creation or attachment of a security interest. This new law protects certain periodic payments from use as collateral. Anti-assignment clauses in contracts or rules of law will be effective as to claims or rights to receive amounts under a worker's compensation act, to receive payments for damages arising from personal injuries or to receive payments from a special needs trust described in 42 USC §1396P(D)(4). A "special needs" trust is established for a disabled person. In addition, in this area, the UCC will prevail over other Maryland laws, unless the other law expressly states that it prevails.
Credit Services Businesses, HB 1193- Chapter 561 (effective June 1, 2002). This law is aimed at stopping "payday lending" through the use of an out of state financial institution, the so-called rent-a-bank" approach. "Credit services businesses" help consumers improve their credit record or obtain an extension of credit. They must be licensed under Maryland law. Beginning June 1, 2002, credit services businesses may not help consumers obtain credit at a rate of interest that would be prohibited by Maryland law, even if the rate would not be prohibited because of the use of federal preemption.
Action Alert: This law also may impose restrictions on loan origination through non-bank parties, such as retailers and equipment dealers, depending on the interest rate charged. We suggest reviewing third party loan origination arrangements in light of this change and the Maryland Commissioner of Financial Regulation's aggressive enforcement efforts. This law also may impose restrictions on loan origination through non-bank parties, such as retailers and equipment dealers, depending on the interest rate charged. We suggest reviewing third party loan origination arrangements in light of this change and the Maryland Commissioner of Financial Regulation's aggressive enforcement efforts.
Payday Loan Prohibition, Senate Joint Resolution 7. Taking another approach to stopping "payday lending," the Maryland General Assembly urges the Maryland Congressional Delegation to enact a federal law that would prohibit an insured depository institution from making a payday loan directly or through an agent.
Atlantic Coastal Bays Protection Act, HB301-Chapter 433 (effective June 1, 2002). This law applies the Chesapeake Bay Critical Area Protection Program and corresponding regulations to the Atlantic Coastal Bays Critical Area, including Assawoman, Isle of Wight, Sinepuxent, Newport, and Chincoteague Bays. In addition to all waters and lands under the coastal bays and their tributaries and all areas within 1,000 feet of wetlands and the heads of tides, the Atlantic Coastal Bays Critical Area also includes additional areas proposed for inclusion by local jurisdictions and approved by the Critical Area Commission. If a lot is legally recorded, legally buildable, and was approved by a local jurisdiction before the date of final program approval, on or before September 29, 2003, then development activity is permissible. The law requires that local programs approved or adopted by the commission take effect by September 29, 2003 and allows for limited grandfathering of certain development projects.
Action Alert: Loans secured by real property in areas affected by this law should be reviewed.
Loans secured by real property in areas affected by this law should be reviewed.
Recordation Tax - Refinancing Instrument, HB 512-Chapter 524 (effective July 1, 2002). Under current law, there is an exemption from recordation tax when an original mortgagor refinances a loan secured by his or her principal residence. The exemption applies to the extent the refinancing mortgage or deed of trust secures an amount not greater than the unpaid principal balance secured by the existing security instrument. To qualify for this tax exemption, the original mortgagor must make a statement in the refinancing security instrument or must provide an affidavit describing the facts that make this exemption available. This new law allows, as an alternative, an agent of the original mortgagor to give the statement or affidavit.
Settlement Expenses Loan Program -Homebuyer's Education, HB 1188-Chapter 271 (effective June 1, 2002). This law requires all homebuyers who receive loans from the Maryland Department of Housing and Community Development (DHCD) through the Settlement Expense Loan Program to receive homeownership counseling. If the local jurisdiction in which the home is being purchased does not require education or counseling, the borrower must complete homebuyer counseling that meets standards established by DHCD. The Downpayment and Settlement Expense Loan Program helps eligible homebuyers buy either single-unit homes or residential buildings with no more than 4 units by providing loans for settlement expenses, including closing costs and appraisal fees.
Action Alert: Lenders who participate in this program will have to make sure that the requirements of the new law are met.
Lenders who participate in this program will have to make sure that the requirements of the new law are met.
Escheat, SB 323-Chapter 440 (effective, for these purposes, June 1, 2002). The 70-page Budget Reconciliation and Financing Act of 2002, addresses many aspects of the Maryland State budget. Its changes to the Maryland escheat law significantly affect financial service providers and other businesses. Under current law, deposit accounts and other property held by financial institutions are presumed to be abandoned and must be transferred to the State after expiration of specified time periods, normally 5 years of "inactivity." This law reduces from 5 to 4 years the period for presumption of property abandonment for reporting periods ending on or after June 30, 2002, and further reduces from 4 to 3 years the period for presumption of abandonment for reporting periods ending on or after June 30, 2003.
Action Alert: This law raises operational issues for depository institutions because it accelerates when accounts and other property must be deemed "abandoned." In addition to changes required by this new law, depository institutions may want to consider "early" compliance with the changes required in 2003.
This law raises operational issues for depository institutions because it accelerates when accounts and other property must be deemed "abandoned." In addition to changes required by this new law, depository institutions may want to consider "early" compliance with the changes required in 2003.
Child Support - Garnishment, HB 683-Chapter 536 (effective October 1, 2002). This law creates a new nonjudicial procedure that the Child Support Enforcement Administration may use to obtain possession of delinquent child support payments. It also clarifies some issues surrounding the State's child support data match program, which is now being implemented.
Action Alert: Depository institutions must become familiar with the new nonjudicial garnishment procedures, which differ from those normally followed for judicial garnishments. Depository institutions must become familiar with the new nonjudicial garnishment procedures, which differ from those normally followed for judicial garnishments.
MONEY TRANSMISSION AND RECEIPTS
Money Transmission, HB 715-Chapter 539 (effective October 1, 2002). The Maryland money order and travelers check law is updated and amplified by the Money Transmission Act. Money transmitters provide non-bank payment mechanisms, like wire transfers, and sell money orders, traveler's checks and stored value devices. In Maryland, a money transmitter includes anyone selling payment instruments or stored value devices, or receiving money for transmission, including electronically or through the internet, any bill payer service and any accelerated mortgage payment service. Money transmitters must be licensed, must be supported by a surety bond and are subject to regulation by the Maryland Commissioner of Financial Regulation. An "accelerated mortgage payment service" means receiving funds from a mortgagor for the purpose of making payments to a mortgagee in order to exceed the regularly scheduled minimum payment obligation. It does not include collection by a mortgagee of accelerated payments from its own mortgagors. Non-profit organizations exempt from taxation under Internal Revenue Code §501(c)(3) are not included as bill payers. The Money Transmission Act does not apply to banks, savings banks, savings and loan associations or credit unions.
Payment Devices - Receipts, SB 25-Chapter 295 (effective October 1, 2002). This law prohibits any electronically printed receipt in connection with the purchase of consumer goods or services from printing more than 8 digits of the consumer's credit card or payment device number. A "payment device number" is any code, account number or other means of account access, other than a check, draft or similar paper instrument used to obtain money, goods or services, or for purposes of initiating a transfer of funds. A civil penalty of $25 applies to each violation. The law is effective October 1, 2002, for machines put into use on or after October 1, 2002. Machines put into use before October 1, 2002, have until January 1, 2006, to comply with the new law.
TRUSTS AND ESTATES
Unitrust Conversion, HB 881 SB 641-Chapter 478 (effective October 1, 2002). In 2000, Maryland enacted most of revised Uniform Principal and Income Act as proposed by the National Conference of Commissioners on Uniform State Laws. This year, the legislature enacted certain provisions not included before. Among other changes, this law allows a trustee to convert a trust to a "unitrust" or make an adjustment between principal and income if a written request to do so is received from a beneficiary. A "unitrust" is a trust from which the income beneficiary is entitled to receive annually a fixed percentage of the fair market value of the assets.
Action Alert: Trustees should review this Maryland law carefully because it does not follow the NCCUSL uniform provisions completely. There are unique Maryland processes and procedures that the trustee must follow when carrying out activities allowed by this law.
Trustees should review this Maryland law carefully because it does not follow the NCCUSL uniform provisions completely. There are unique Maryland processes and procedures that the trustee must follow when carrying out activities allowed by this law.
The Budget Reconciliation and Financing Act of 2002, SB323-Chapter 440 (effective June 1, 2002). This law partially decouples the State estate tax from the federal estate tax. The federal Economic Growth and Tax Reconciliation Act of 2001 reduces and ultimately repeals the amount of the credit allowed under the federal estate tax for state death taxes paid. Maryland, like most states, has an estate tax that is linked to the federal credit. The phase-out of the federal credit under the 2001 federal tax act will eliminate the State estate tax because the State tax is linked to the federal tax. This law continues the Maryland estate tax without reduction. Other provisions of federal estate tax law, including the applicable unified credit (tax liability threshold for the estate tax) allowed against the federal estate tax, are those in effect on the date of the decedent's death. This law applies to all decedents dying after December 31, 2001.
PREMIUM FINANCE COMPANIES
Premium Finance Companies, SB 335-Chapter 356 (effective October 1, 2002). This law increases the delinquency and collection charge that an insurance premium finance company may charge an insured under a premium finance agreement from $5 to $8. The law also increases the cancellation charge that a premium finance company may charge an insured to the difference between $15 and the amount of the late fee for the installment in default. These increases apply only to agreements entered into in connection with private passenger motor vehicle or personal fire or liability insurance.
Action Alert: Premium finance agreements must be revised to take advantage of these fee increases. Premium finance agreements must be revised to take advantage of these fee increases.
CREDIT UNION SHARE INSURANCE
Maryland Credit Union Insurance Corporation -Dissolution, HB 728-Chapter 540 (effective July 1, 2002). This law dissolves the Maryland Credit Union Insurance Corporation (CUIC) and authorizes Maryland credit unions to use instead private credit union share guaranty corporations. CUIC is the nonprofit nonstock corporation established under Maryland law that currently insures the accounts of certain Maryland-chartered credit unions. (Accounts at Maryland-chartered credit unions also may be insured by the National Credit Union Insurance Fund.) When the Maryland Commissioner of Financial Regulation issues the first certificate of authority to a share guaranty corporation, CUIC may not accept any applications for new credit union membership. Within the following 2 years, CUIC-insured credit unions must obtain alternative deposit guaranty insurance from either the NCUIF or a certified share guaranty corporation.
Service Contracts, SB 543-Chapter 472 (effective October 1, 2002). This law, known as the Maryland Service Contracts and Consumer Products Guaranty Act, imposes new requirements on "providers" under service contracts, which are contracts entered into in connection with the sale of consumer goods or services where the seller or other obligated party agrees to repair, replace or maintain, or to indemnify for the repair, replacement or maintenance, a product because of defects, wear and tear, power surges and/or accidents. Warranties that are part of the original bargain and provided for no additional cost to the consumer, as well as mechanical repair contracts and mechanical breakdown insurance, are not covered. A service contract must be in writing and contain certain disclosures and terms. The law also governs the duration of service contracts. Importantly, a service contract is automatically extended if the contract provider fails to perform the services.
Action Item: Persons who sell goods and services and offer to provide maintenance, repair or similar services in connection with those products for an additional fee should revise existing contracts to ensure compliance with this new law. Persons who sell goods and services and offer to provide maintenance, repair or similar services in connection with those products for an additional fee should revise existing contracts to ensure compliance with this new law.
Dishonored Instruments, SB 119-Chapter 298 (effective October 1, 2002). This law changes the procedures the holder of certain bad checks must follow to recover damages. Current law allows the holder of a bad check to seek damages 30 days after the holder mails a notice of dishonor to the drawer of the bad check. This law requires the holder either to obtain a certificate of mailing of the notice from the U.S. Postal Service or to execute an affidavit attesting to the mailing of the notice. This law does not apply to checks made to pay credit or loan obligations.
Action Alert: Because a certificate of mailing from the U.S. Postal Service costs $0.75 per item mailed, businesses should consider using the affidavit approach. Because a certificate of mailing from the U.S. Postal Service costs $0.75 per item mailed, businesses should consider using the affidavit approach.
Bad Checks - Criminal Law, HB 197-Chapter 42 (effective October 1, 2002). Obtaining "services" by making or passing a bad check is a crime in Maryland. This law modernizes the criminal law by including the use of computers, data processing or other equipment as "services."
MARYLAND TAX CREDITS
Maryland Heritage Structure Rehabilitation Tax Credit, HB 759-Chapter 541 (effective June 1, 2002). This law significantly limits the Maryland Heritage Structure Rehabilitation Tax Credit. The law reduces the credit percentage to 20 percent and provides that a State tax credit for a single rehabilitation under the program may not exceed $3 million. Rehabilitation expenditures that qualify for the credit are limited to the estimated expenditures stated in the application for approval of a proposed rehabilitation submitted to the Maryland Historical Trust. The law eliminates a loophole under which the credit could be taken for expenditures financed by State grants and other State financing and limits the use of the Heritage Credit by providing that a single rehabilitation includes the phased rehabilitation of the same structure and the rehabilitation of multiple structures that are functionally related.
The law, which takes effect on June 1, 2002 and applies to tax years beginning after December 31, 2001, grandfathers all incomplete projects for which an application has been submitted for approval of a proposed rehabilitation as of February 1, 2002 and provides that these projects may take the credit under the law in effect on May 31, 2002.
Action Alert: Lenders participating in this program should carefully review this law. Lenders participating in this program should carefully review this law.
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
Marjorie A. Corwin , 410-576-4041
D. Robert Enten, 410-576-4114
Peter B. Rosenwald, III, 410-576-4193
Carla Stone Witzel, 410-576-4192