Maryland Laws Update for Financial Services

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Maryland Legal Alert - August 2020





Survey of Activities Identified as Unfair, Deceptive, or Abusive

The latest edition of our semi-annual Survey of Activities Identified as Unfair, Deceptive, or Abusive Under the Dodd-Frank Act is now available on our website. This survey covers the Consumer Financial Protection Bureau’s supervision and enforcement efforts over the first half of 2020.

Contact Christopher R. Rahl or Bryan M. Mullwith any questions or for additional analysis.

Contact Christopher R. Rahl | 410-576-4222

Contact Bryan M. Mull | 410-576-4227

Fourth Circuit Addresses FDCPA Limitations Period

The Fair Debt Collection Practices Act (FDCPA) provides that a claimant must bring an FDCPA claim “within one year from the date on which the [FDCPA] violation occurs.” A majority of federal courts, including the U.S. Court of Appeals for the Third and Eighth circuits, have held that each alleged FDCPA violation starts a separate limitations clock. However, some federal courts, including the U.S. District Court for the District of Maryland, have held that the statute of limitations for a series of repeated FDCPA violations of the same type run from the first violation of that type. The U.S. Court of Appeals for the Fourth Circuit appeared to have adopted this minority approach in two unpublished per curiam orders.

In a recent decision, the Fourth Circuit shifted away from the minority view, holding that each alleged FDCPA violation has its own limitations period. In this case, the borrowers alleged FDCPA violations against a debt collector in connection with the collector’s communications with the borrowers. The borrowers filed suit more than a year after the debt collector’s first alleged unlawful communication occurred but less than one year after the other allegedly unlawful communications occurred. The U.S. District Court for the District of Maryland granted the debt collector’s motion to dismiss, reasoning that the first of the series of allegedly unlawful communications occurred outside of the limitations period and therefore the borrowers’ entire claim was time-barred.

In overruling the trial court, the Fourth Circuit reasoned that the FDCPA did not have textual support to suggest that the one-year limitations period applied to a series of repeated violations instead of each individual violation. The court also emphasized that, practically speaking, if the court followed the minority approach, a debt collector could violate the FDCPA with impunity once the initial violation in a series of similar violations fell outside of the one-year limitations period. The court also noted that its prior per curiam orders that aligned with the minority approach were not binding. The Fourth Circuit overruled the trial court and held that the borrowers could maintain their suit with respect to the alleged violations that occurred less than one year before the borrowers filed suit.

Practice Point: The FDCPA’s limitations period has been a ripe area for litigation in recent months. Earlier this year, the U.S. Supreme Court ruled that a general “discovery rule” did not apply to the FDCPA’s statute of limitations. That ruling did not address whether a “fraud-based discovery rule” could extend the statute of limitations and at least some of the justices appear receptive to such an exception. The recent Fourth Circuit decision swings the pendulum back to the borrowers, as debt collectors in Maryland have now lost a compelling statute of limitations defense.

Please contact Bryan M. Mull with any questions concerning this topic.

Contact Bryan M. Mull | 410-576-4227

States Challenge OCC’s Madden Rule

We reported in our July 2016 Maryland Legal Alert that the U.S. Supreme Court had declined to review the decision of the U.S. Court of Appeals for the Second Circuit in Madden v. Midland Funding, LLC. The Madden decision sowed uncertainty and confusion among debt buying and bank-partnership model lending businesses, because of its holding that the purchaser of debt from a national bank (charged-off debt in the case of Madden) was not a beneficiary of the preemptive interest rate authority of the lender, a national bank, under Section 85 of the National Bank Act. Even though the loan was valid when made, a purchaser of the debt, unlike a national bank, could be subject to usury limitations under state law. We reported in our December 2019 Maryland Legal Alert that the Office of the Comptroller of the Currency (OCC) proposed a rule to clarify that when a national bank sells, assigns or transfers a loan that was valid when made, interest permitted prior to the transfer continues to be permitted post-transfer. A number of parties submitted comments to the OCC in opposition to the proposed rule, and a revised version of the OCC’s rule became final in May 2020.

On July 29, 2020, California, Illinois and New York filed suit against the OCC in connection with the rule. The lawsuit argues that the OCC went beyond its authority in enacting the rule and failed to follow certain procedural requirements. The lawsuit contends that that the rule will greatly expand preemptive authority for non-bank parties, furthering non-bank parties in efforts to circumvent state interest rate limits.s we

Please contact Christopher R. Rahl with questions concerning this topic.

Contact Christopher R. Rahl | 410-576-4222