• BEWARE: COURT EXPANDS COVERAGE OF CREDIT SERVICES BUSINESS ACT
• GARNISHMENT CASE SETS STANDARD FOR DECIDING OWNERSHIP OF FUNDS
• MARYLAND MORTGAGE INDUSTRY LICENSE RENEWALS BEGIN
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.