Maryland Legal Alert for Financial Services

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Maryland Legal Alert November 2015

In this issue:

FCC TCPA ACTIONS – WATCH YOUR TERMS OF USE
BEWARE: COURT EXPANDS COVERAGE OF CREDIT SERVICES BUSINESS ACT
GARNISHMENT CASE SETS STANDARD FOR DECIDING OWNERSHIP OF FUNDS
MARYLAND MORTGAGE INDUSTRY LICENSE RENEWALS BEGIN

FCC TCPA ACTIONS – WATCH YOUR TERMS OF USE

The Federal Communications Commission (FCC) took action recently against two firms for alleged violations of the Telephone Consumer Protection Act and its implementing regulations (TCPA). Both actions took the form of a citation and order, notifying both firms of the alleged violations and directing both to take immediate steps to comply with the TCPA. The two actions involve a bank and its online banking terms of service (available HERE) and a ride sharing application provider and its terms of use (available HERE). At issue is the TCPA’s prohibition concerning calls/texts to cellular and residential telephone numbers where the caller/sender uses an “automatic telephone dialing system” or a pre-recorded message (ATDS messages). The TCPA permits ATDS messages only with prior express written consent and only if such consent is not a condition of use of the underlying service. In the FCC’s action against the bank, the online banking terms of service required consent to receive ATDS messages for marketing purposes. In the FCC’s action against the ride sharing service, the terms of use required consent to receive ATDS messages for promotional purposes. The ride sharing service’s terms of use stated that this consent was not a requirement to use the service, but that opting out could impact use of the underlying service. The FCC noted that the described opt-out process was not followed and, in fact, opting-out effectively prohibited use of the ride sharing service. The TCPA provides for statutory damages of at least $500 per violation and there has been a recent flurry of TCPA class actions against several large companies, so this is not just a regulatory concern. All businesses, including financial institutions, should review their online terms and conditions to make sure that (1) they are not requiring users to consent to receive ATDS messages as part of obtaining products or services; and (2) any ATDS consent authorization language satisfies the TCPA’s detailed disclosure requirements. Please contact Christopher Rahl for more information concerning this topic.

BEWARE: COURT EXPANDS COVERAGE OF CREDIT SERVICES BUSINESS ACT

On October 27, 2015, the Court of Special Appeals of Maryland published an opinion in which it held that a third party marketer of consumer loans was a “credit services business” under the Maryland Credit Services Business Act (MCSBA). The defendant operated its business by taking applications for consumer loans, forwarding those applications to two federally insured out-of-state banks that would originate the loans and then immediately sell the loans back to the defendant. The defendant would then collect all payments, interest, and fees due on the loans from the borrowing Maryland consumer. The Maryland Commissioner of Financial Regulation brought claims asserting the business was subject to and failed to comply with the MCSBA. The business petitioned the Circuit Court for Baltimore City for judicial review of the Commissioner’s assessment and the lower court agreed with the business. The Commissioner appealed. Despite the plain language of the MCSBA, the Court of Special Appeals held that the defendant was a credit services business irrespective of whether it received direct payment from consumers for its services. Specifically, the court held that “[t]o make the MCSBA’s applicability contingent on a ‘direct payment’ from the consumer to the business entity, under any and all circumstances, would undermine the protections for Maryland consumers the legislature strove so hard to put in place.” This decision appears to conflict with the 2012 Court of Appeals of Maryland decision in Gomez v. Jackson Hewitt, Inc., where the court held that “the plain language of the [M]CSBA can reasonably and most logically be understood as reflecting the legislative intent that the ‘payment of money or other valuable consideration’ in return for credit services flow directly from the consumer to the credit services business.” Additionally, this October 27, 2015 decision by the Court of Special Appeals is a substantial departure from an unreported opinion of that same court issued just days before on October 23, 2015, in which the court held that the MCSBA did not apply to lawyers representing clients in loan modification negotiations with mortgage lenders. This new MCSBA reported decision by the Court of Special Appeals has implications for businesses that touch the extension of consumer credit to Maryland residents by a third party. We believe this decision will have unforeseen consequences and are hopeful that it will be appealed, so that the issues can be reconsidered by the Court of Appeals of Maryland. In the meantime, if you have any questions about the decision and its impact on your business, please contact John Morton.

GARNISHMENT CASE SETS STANDARD FOR DECIDING OWNERSHIP OF FUNDS

On October 1, 2015, the Court of Special Appeals of Maryland affirmed a Circuit Court of Montgomery County decision and held there is a presumption that each joint account holder owns the funds in a bank account but that presumption may be rebutted by clear and convincing evidence to the contrary. In this case, father and son were joint owners of a bank account and each had rights of withdrawal. A writ of garnishment was obtained against only the son (the sole judgment debtor). Father filed motions with the trial court requesting that the funds be released because he was the sole owner of the funds. Initially the lower court denied father’s motions without a hearing but, upon father’s appeal, the Court of Special Appeals remanded the case directing the trial court to hold a hearing. After an evidentiary hearing, the trial court ruled in favor of father finding the evidence established that all funds in the joint account belonged solely to father. The judgment creditor appealed, arguing that funds in this joint account were per se subject to garnishment because son was named an owner and was an authorized signer on the account. Alternatively, the judgment creditor argued the facts did not support a conclusion that all of the funds belonged to father. The Court of Special Appeals disagreed. The court determined that an account holder can rebut a presumption of joint ownership of funds in a deposit account and adopted the standard applied by a majority of other courts when evaluating whether a co-owner has successfully rebutted the presumption – a clear and convincing standard. Applying this standard, the Court affirmed the trial court’s ruling. Of note, no one challenged the right of a depository institution that is served with a writ of garnishment (the garnishee) to hold funds in a jointly held account and to answer the writ by stating that the property is held in an account in the name of two or more persons, one or more of whom but fewer than all of whom are judgment debtors. This protection in Maryland's law is very helpful for garnishee depository financial institutions. If you would like to discuss this case or if you have any questions concerning garnishment proceedings, please contact Margie Corwin.

MARYLAND MORTGAGE INDUSTRY LICENSE RENEWALS BEGIN

As of November 1, 2015, Maryland mortgage licensees may now renew their licenses for the 2016 calendar year online through the Nationwide Multistate Licensing System & Registry (NMLS). Please see the Maryland Mortgage Lender License Renewal Notice and the Maryland Mortgage Loan Originator License Renewal Notice from the Office of the Commissioner of Financial Regulation for details concerning mortgage industry license renewals. If you have any questions, please feel free to contact Margie Corwin.