Maryland Legal Alert for Financial Services

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Update: Mortgage Licensing for Assignees in Maryland

Fourth Circuit Reaffirms Protections for Financial Institutions in ACH Fraud Case

Update: Mortgage Licensing for Assignees in Maryland

As we noted in our March Maryland Legal Alert, the Maryland Commissioner of Financial Regulation previously issued three industry advisories since January of this year concerning a 2024 case involving mortgage lender licensing requirements. The underlying case involved a passive trust formed to hold mortgage loans, that were assigned by licensed or exempt lenders.  When the trust foreclosed on a delinquent Maryland mortgage loan, one of the borrower’s defenses was that the trust was not properly licensed as a Maryland mortgage lender (based on language in existing Maryland law that lumps assignees of certain loans into the “credit grantor” definition).  The Commissioner’s advisories, issued in January and February of this year, addressed licensing requirements and proposed legislative adjustments to existing Maryland law.   

During the 2025 Maryland legislative session, Senate Bill 1026 and House Bill 1516 were enacted, exempting “passive trusts” that acquire Maryland mortgage loans by assignment but do not originate, service, or collect these loans on their own behalf from Maryland’s mortgage lending licensing provisions. A “passive trust” is an entity that acquires or is assigned mortgage loans, does not make any mortgage loans, is not a “mortgage lender” or “mortgage servicer” under Maryland law, and is not engaged in the servicing of mortgage loans (the new laws carve out the act of transmitting or directing payments received by a mortgage servicer). The Commissioner also extended the licensing enforcement grace period from April 10, 2025 to July 6, 2025 allowing "non-passive trust" to apply for and obtain Maryland mortgage lender licensing. The new laws were approved as emergency measures and were approved by the Governor on April 22, 2025. 

Practice Pointer: Entities that take assignment of Maryland consumer mortgage loans should carefully review the new laws to determine whether licensing is required.

For more information, contact Christopher R. Rahl.

Contact Christopher R. Rahl | 410-576-4222

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Fourth Circuit Reaffirms Protections for Financial Institutions in ACH Fraud Case

Following the Fourth Circuit Court of Appeals' March decision in Studco Building Systems, U.S. v. 1st Advantage Federal Credit Union earlier, the court continues to reinforce protections for financial institutions in cases involving ACH transfer fraud. In a recent ruling, the Fourth Circuit denied the appellant, Studco, a request for a rehearing by the panel, despite claims that the financial institution failed to comply with Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations. 

The appellant alleged that the financial institution did not perform adequate customer due diligence—such as verifying the account holder’s identity, address, and source of funds—as required under KYC and AML regulations. In particular, the appellant asserted that the financial institution failed to implement reasonable security procedures to detect fraudulent ACH transfers into an account held by one of its customers, as well as the subsequent disbursements to fake business entities.

Additionally, the appellant contended that the financial institution violated the National Automated Clearing House Association (NACHA) Operating Rules by accepting business-coded ACH transactions into a personal account. 

The panel held that the financial institution did not have actual knowledge that the account was being used for fraudulent activity and, therefore, could not be held liable under the applicable legal framework. However, in a concurring opinion, one judge noted that the evidence suggested the financial institution may have had actual knowledge of the account misrepresentation prior to the final two transfers. 

For more information, contact Tamia J. Morris.

Contact Tamia J. Morris | 410-576-4021

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