Maryland Legal Alert for Financial Services

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Maryland Legal Alert - May 2022

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Convenience Fee Concerns Exist for Lenders

As we reported in our February Maryland Legal Alert, the Fourth Circuit Court of Appeals (Court) in January held that mortgage servicers are debt collectors under the Maryland Consumer Debt Collection Act (MCDCA). The convenience fees charged to borrowers who paid monthly mortgage bills online or by phone violated the MCDCA even though the borrowers were told they would incur the fee if they paid online or by phone.

The case highlighted differences between Maryland and federal law in the debt collection space.

The Court made clear that the MCDCA covers an entity that is not a typical third-party debt collector. This is noteworthy, because covered “collectors” under the MCDCA are prohibited from engaging in conduct that would violate specified provisions of the federal Fair Debt Collection Practices Act (FDCPA) even though under the FDCPA, a creditor collecting its own debts in its own name is generally exempt from the FDCPA. Even a financial institution collecting its own debts could be a collector under the MCDCA.

Because of the case, Maryland lenders who collect their own loan payments and charge a convenience fee should evaluate whether they can assess such a fee. Even if a lender includes a provision in their loan documents that authorizes such a fee, lenders should determine whether they have authority to charge such a fee considering any fee limitations in the credit law they elect.

For more information concerning this topic, please contact Christopher R. Rahl.


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Virginia Approves New Requirements on Merchant Cash Advances to Businesses

In an effort to address concerns over merchant cash advances (MCAs) to Virginia businesses, Virginia Governor Glenn Youngkin signed House Bill 1027 into law April 11, 2022. This new law, which becomes effective July 1, 2022, will require providers and brokers of MCA financing to register with the Virginia State Corporation Commission, provide pre-funding disclosures to funding recipients and follow certain dispute resolution procedures.

The law’s disclosure requirements do not mandate disclosure of an annual percentage rate but do require disclosure of seven upfront categories of information (including an undefined “finance charge”) and an additional updated disclosure in the event the recipient wishes to refinance or payoff the MCA early.

Regarding enforcement and dispute resolution, the new law prohibits the use of confessed judgment provisions and requires that any court action in connection with the financing agreement be brought in a court in the Commonwealth of Virginia.

The law also prohibits MCA financing agreements from requiring in-person arbitration outside of Virginia and requires the MCA provider to cover all arbitration costs.

The law does not apply to:

  • Banks and credit unions,
  • MCAs in excess of $500,000, or
  • Providers or brokers entering into five or fewer MCA transactions in a 12-month period.

For questions concerning this topic, please contact Bryan M. Mull.

CONTACT BRYAN M. MULL | 410-576-4227

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U.S. Senate Passes Bill Extending Expansion of Eligibility for Small Business Chapter 11 Filing

As we previously reported, certain temporary bankruptcy code amendments that U.S. Congress originally enacted in connection with the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) expired March 27, 2022, including the increased debt limit from $2,725,625 to $7.5 million for debtors seeking to file a Chapter 11 bankruptcy petition as a small business debtor under the subchapter V provisions in the Small Business Reorganization Act.

In March 2022, a bipartisan group of U.S. Senators introduced a bill titled the “Bankruptcy Threshold Adjustment and Technical Corrections Act.” The bill originally intended to make the increased subchapter V debt limit permanent and indexed to inflation. The bill also sought to increase the Chapter 13 debt limit to $2.75 million, while also removing the distinction between secured and unsecured debts.

On April 7, 2022, the Senate passed an amended version of the bill, in which the increased debt limits would sunset after two years from enactment of the bill.

We will continue to monitor this legislation while it works its way through the U.S. House of Representatives.

For questions concerning this topic, please contact Bryan M. Mull.

CONTACT BRYAN M. MULL | 410-576-4227

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FDIC to Supervised Banks: Provide Notice Before Engaging in Crypto-Related Activities

The Federal Deposit Insurance Corporation (FDIC) issued a Financial Institution Letter on April 7, 2022, in which it addressed FDIC-supervised banks’ entry to digital asset services.

In the letter, the FDIC expressed its concern that “crypto-related activities” (e.g., acting as a crypto-asset custodian, maintaining stablecoin reserves, and participating in blockchain settlement or payment systems) posed significant risk as to safety and soundness, financial stability, and consumer protection.

To that end, the FDIC directed its supervised institutions to promptly notify the FDIC before it engages in, or if it is currently engaged in, any crypto-related activities and to provide all necessary information that would allow the FDIC to engage with the institution regarding related risks.

For questions concerning this topic, please contact Bryan M. Mull.

CONTACT BRYAN M. MULL | 410-576-4227

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