Maryland Legal Alert for Financial Services

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Maryland Legal Alert July 2014

In this issue:

No Assignee Liability for Secondary Mortgage Loan Law Origination Fees Claim
Are Secondary Mortgage Loan Law Claims Really at an End?
MasterCard Extends Zero Liability Protection for PIN Transactions
CFPB Enters More RESPA Section 8 Consent Orders
Personnel Changes at the Maryland Commissioner of Financial Regulation

No Assignee Liability for Secondary Mortgage Loan Law Origination Fees Claim

In a June 23, 2014 decision, the Maryland Court of Appeals affirmed a Court of Special Appeals decision that an assignee of a second mortgage loan is not liable under the Maryland Secondary Mortgage Loan Law (SMLL) for violations committed at the time of loan origination. We reported on the appellate court decision in our March 2013 Maryland Legal Alert. The Court's conclusion of no assignee liability was based in the first instance on the lack of statutory language imposing assignee liability in the SMLL. At this time very few second lien mortgage loans are governed by the SMLL. Rather, they are expressly governed by the Credit Grantor Provisions found in Commercial Law, Title 12, Subtitle 10 (for closed-end loans) and Subtitle 9 (for revolving credit), and both subtitles provide for assignee liability. Thus, while the analysis in the decision, which moves from the SMLL to assignee liability under the UCC to assignee liability under common law, is interesting, it should have little impact on assignees of most Maryland second lien mortgage loans. Please contact Margie Corwin to discuss further.

Are Secondary Mortgage Loan Law Claims Really at an End?

As mentioned in the item above, we believe very few second lien mortgage loans are now governed by the SMLL because the loan documents expressly elect the Credit Grantor Provisions as governing law. However, in a recent decision, the Maryland Court of Special Appeals reversed a trial court's grant of summary judgment on an SMLL claim. The appellate court's decision, which reaffirmed a 12-year statute of limitations for SMLL claims, discussed the SMLL for 16 pages and never once addressed whether an express election of Subtitle 9 made analysis of the SMLL irrelevant. This appears to be a case to watch. Please contact Margie Corwin if you would like to discuss this subject.

MasterCard Extends Zero Liability Protection for PIN Transactions

MasterCard announced that starting in October 2014 MasterCard-issued cards will add zero liability protection for PIN-based transactions (including ATM transactions). As background, Federal Reserve Board Regulation E sets out the basic framework for cardholder liability for unauthorized transactions, limiting cardholder liability based on the timeliness of a cardholder's notice to the issuing financial institution: $50 (if a cardholder provides notice within 2 business days after learning of card loss/theft); and $500 (if a cardholder provides notice within 60 days after statement issuance). If a cardholder fails to provide notice within 60 days after statement issuance, the cardholder may be responsible for the full amount of all unauthorized transactions. Both MasterCard and Visa have instituted policies that enhance the basic Reg. E requirements and provide for zero liability in situations where: (a) the cardholder's account is in good standing; (b) the cardholder has exercised reasonable care in safeguarding the card; and (c) the cardholder has not reported 2 or more unauthorized transactions within the past 12 months. Both MasterCard and Visa offer zero liability protection for signature-based transactions and both currently exclude zero liability protection for transactions processed using a cardholder's PIN. MasterCard's recent announcement adding zero liability protection for PIN-based transactions (including ATM transactions), along with some other changes, means financial institutions that issue MasterCard-branded cards will need to update their Reg. E account opening disclosures and notify existing customers of this change. Reg. E requires at least 21 days' advance notice for most changes, which means updated disclosures and notices need to be provided in September 2014. Please contact Christopher Rahl if you would like to discuss this or if you need assistance with your Reg. E disclosures.

CFPB Enters More RESPA Section 8 Consent Orders

The Consumer Financial Protection Bureau (CFPB) has been active in its pursuit of persons it believes are violating Section 8 of the Real Estate Settlement Procedures Act (RESPA). Underlying one recent consent order, the CFPB took issue with the manner in which an affiliated business arrangement (AfBA) operated. One of the CFPB's assertions was that the format of the AfBA Disclosure Statement given by the settlement service provider was not exactly as published in Appendix D to Regulation X. As part of the consent order, the CFPB mandated use of the AfBA Disclosure Statement as published in Appendix D. This particular order also mandated payment of a civil money penalty of $500,000. Underlying another recent consent order, the CFPB asserted that a title company's practice of paying certain individuals based on the referral of settlement service business violated RESPA Section 8. This was the CFPB's conclusion even though the individuals were paid by the settlement service provider on a W-2 basis and were treated as employees for IRS purposes. This particular order mandated payment of a civil money penalty of only $30,000, based in large measure on the respondents' claim that neither the company nor its owners could afford a greater payment. Through this order, however, the CFPB has underscored that no company is too small to pursue and that it will force companies out of business if rules are not followed. As is always recommended, settlement service providers should carefully review for RESPA compliance all arrangements intended to generate business. Please contact Margie Corwin on RESPA and mortgage lending issues.

Personnel Changes at the Maryland Commissioner of Financial Regulation

There have been many changes in personnel at our Commissioner's office over the past few years. There is yet another. Mark Kaufman announced that he is resigning his position as Commissioner, which he has held for 4 years. Mark reported that he accepted a position with the Treasury Department as a Counselor in the Office of the Secretary where he will be assisting Maryland's former Commissioner, now Deputy Treasury Secretary, Sarah Bloom Raskin. Mark also reported that current Deputy Commissioner Gordon Cooley will serve as Acting Commissioner. Gordon has a long and accomplished career in the banking industry and brings extensive financial services and legal experience to the position. We send our best wishes to both Mark and Gordon on their new positions.