Maryland Legal Alert for Financial Services
Maryland Legal Alert May 2017
- Maryland Collection Agency Licensing: Questions Continue
- Guarantor's Discharge Not Applicable to Post-Petition Credit
- Rule Changes Impact Trademarks
- State Regulators Sue to Stop FinTech Charters
- Disaster Preparedness for Maryland Depository Institutions
We have previously reported, in our June 2010 Maryland Legal Alert and April 2015 Maryland Legal Alert, about Maryland's Collection Agency Licensing Act (MCALA), found at MD Code Ann., Bus. Reg. §7-101 et seq. In particular, as a result of a 2007 statutory change and a 2010 regulatory advisory, it has become clear that persons who acquire consumer credit claims that are in default at the time of acquisition must be licensed under MCALA even if the debt buyer is completely passive in its collection efforts and the consumer credit claims are pursued only by persons licensed or exempt from licensing under that Act. A recent court decision has extended this conclusion to foreclosure actions by statutory trusts. In an unreported opinion issued April 17, 2017, Maryland's Court of Special Appeals, our intermediate appeals court, determined in a case of first impression that a Delaware statutory trust which acquired Maryland mortgage loans in default could not foreclose on the underlying properties because the trust was not licensed as a Maryland collection agency. The Court of Special Appeals affirmed the lower court's dismissal of the foreclosure actions. The trust argued that foreclosing is not collecting a "consumer claim" as defined in MCALA because foreclosure is an in rem action. The trust also argued it was exempt from MCALA because it is a "trust company." Further, the trust argued that MCALA only applies to persons engaged in the business of collecting consumer claims and because it was not "doing business" as defined in Maryland's foreign corporations registration law, it was not subject to MCALA. The court rejected all of the trust's arguments. This is just one of a number of ongoing cases where adverse impacts of failing to be licensed under MCALA are at issue. Please contact Margie Corwin if you would like to discuss this subject in greater detail.
Guarantor's Discharge Not Applicable to Post-Petition Credit
It is common for commercial lenders and other creditors to require guarantors to execute a continuing guaranty that is applicable to existing and future extensions of credit. In a recent case, the United States Bankruptcy Court for the District of Massachusetts (Eastern Division) considered a creditor's request for a declaratory judgment that the discharge received by the debtors in a Chapter 7 case did not apply to the creditor's extension of trade credit to the primary obligor after the bankruptcy petition was filed. Under the facts, the debtors signed two guaranties prior to their bankruptcy filing. Neither one was ever revoked. One guaranty was found to be restricted to a specific pre-bankruptcy debt. Thus, under Sec. 727 of the Bankruptcy Code, the debtors were discharged for any liability under that guaranty. The second guaranty was found to be a continuing one. Although Chapter 7 debtors receive a discharge for pre-bankruptcy contingent liabilities, the Court ruled -- quoting an Alabama bankruptcy decision -- that a continuing guaranty is "'a divisible offer of a series of separate unilateral contracts, and contemplates a series of transactions between the debtor and the creditor rather than a single debt, and each transaction creates a new contract.'" As a result, the Court concluded that the debtors' liability under the continuing guaranty for unpaid credit extended by the creditor after the filing of bankruptcy did not arise until then and their discharge did not apply to the creditor's claim. While there is little authority on this issue, the Court's decision is an important development for creditors holding unrevoked continuing guaranties who are seeking to collect on their claims based on a loan or credit extension made after the individual guarantor has filed for Chapter 7 bankruptcy. Please contact Lawrence Coppel for more information concerning this topic.
Rule Changes Impact Trademarks
Recent rule changes at the United States Patent and Trademark Office (PTO) can create peril for an inattentive trademark owner or secured party. In its effort to become paperless, the PTO has revised certain rules and has taken it upon itself to serve papers where a trademark application is being opposed or a trademark registration is being cancelled. The PTO uses the address of record as filed with the PTO. Previously, the parties seeking to oppose an application or cancel a registration were responsible for serving process. But if the address is wrong, the trademark owner will not know that its mark is being challenged. The PTO's failsafe is to publish a notice of opposition or cancellation in its Official Gazette, but many trademark owners and lienholders do not regularly survey this weekly PTO publication and may miss the opportunity to protect their trademark application or registered trademark. If the owner does not receive the notice of the opportunity to fight against an opposition or cancellation, the trademark registration will be nullified, and the inattentive party will lose its valuable rights of trademark registration. The important point to remember is that trademark owners should be certain that their address listed on the records of the PTO is current. If a trademark has been assigned, or the owner has moved, the owner should update its address at the PTO promptly. For a lienholder where registered trademarks are part of the collateral, the loan or lien documents should create an affirmative obligation on the borrower to keep all registration information current. For more information concerning this topic, please contact Ned Himmelrich.
The Conference of State Bank Supervisors (CSBS) filed a lawsuit on April 26, 2017 challenging the authority of the Office of the Comptroller of the Currency (OCC) to issue Special Purpose National Bank Charters (Special Purpose Charters) to FinTech companies. The complaint, filed in the United States District Court for the District of Columbia, alleges that the OCC lacks the authority under the National Bank Act (NBA) to issue Special Purpose Charters to non-depository FinTech companies (see our April 2017 Maryland Legal Alert for details about the OCC's recently released supplement to its Licensing Manual providing more details about the proposed chartering process for Special Purpose Charters). The CSBS argues that under the NBA the OCC can only issue national bank charters to firms engaged in the "business of banking" and that the OCC needs Congressional approval to issue Special Purpose Charters to non-depository FinTech companies. Since the OCC announced its plan to issue Special Purpose Charters late in 2016, state regulators have voiced concerns that the Special Purpose Charters would allow non-banking technology firms to avoid state laws and would undermine the ability of state regulators to protect their respective residents. The CSBS complaint seeks declarative and injunctive relief to stop the OCC from issuing any Special Purpose Charters. Please contact Christopher Rahl for more information on this topic.
Disaster Preparedness for Maryland Depository Institutions
The Maryland Commissioner of Financial Regulation updated the Emergency and Disaster Preparation Information for Maryland State-Chartered Banks, Credit Unions, and Trust Companies. Originally made available in January 2012, this March 2017 version reflects current guidance from the Commissioner's office on what institutions should be prepared to do in light of a major storm or other disaster, the need for evacuation, closures due to emergencies, and similar events. The information is in a very helpful question and answer format. Please contact Margie Corwin if you have questions or would like to discuss.