Maryland Laws Update for Financial Services

E-COMMERCE

Note: The Federal Electronic Signatures in Global and National Commerce Act, effective October 1, 2000, will pre-empt certain provisions of UETA.

Maryland Uniform Computer Information Transactions Act, HB19 - Chapter 11 Under UCITA, a new set of rules will apply to contracts to create, modify, transfer or license computer information, such as software development and license contracts, Internet access agreements and data base access agreements. Contracting parties can opt in or out of UCITA. The UCITA rules will control computer information contracts unless the parties provide otherwise in their contract.

DEPOSITORY INSTITUTIONS

Financial Institution - Franchise Tax -Termination, SB56 - Chapter 225 (effective for tax years beginning January 1, 2001) This law repeals the 7% financial institution franchise tax and replaces it with the 7% corporate income tax. Savings and loan associations will be taxed in the exact same manner as commercial banks. Other non-bank financial institutions continue to be exempt from personal property tax. Special allocation rules apply to non-bank and non-savings and loan association financial institutions.

State Personnel - Payment of Wages - Direct Deposit, SB448 - Chapter 73 Unlike most other employers, the State of Maryland may require its employees hired on or after October 1, 2000, to receive wages by direct deposit, unless the employee requests an exemption. The State Treasurer must adopt regulations to implement this law. Other types of employers (e.g., private sector, etc.) cannot require payment of wages by direct deposit.

Check Cashing Services - Licensing - Maximum Fees, HB516 - Chapter 614 The Maryland Commissioner of Financial Regulation will license and regulate check cashing services beginning October 1, 2000. "Providing check cashing services" means accepting or cashing checks or drafts (including money orders) for compensation. Some activities are exempt (for example, retailers charging a small fee when accepting payment by check). Some businesses are exempt (for example, depository institutions with branches in Maryland). Affiliates of such depository institutions also are exempt from licensing, but are not exempt from other requirements, including: filing information about the business with the Commissioner; pre-approval before moving business locations; record keeping; and limits on charges. Violations of this law result in civil and criminal penalties, as well as treble damages and costs in a private action.

Fiduciary Institutions - Customer Financial Records - Allowable Disclosures, HB736 - Chapter 407 When a depository financial institution (both state and federally chartered) believes that a customer has been subject to "financial exploitation" (e.g., misuse of funds), the institution may, but is not required to, make a report to the adult protective services program of the Department of Social Services. The report may contain financial records and the institution is not required to tell the customer or any other person that a report has been filed. To protect the institution, the law provides that there is no duty to make such reports and that institutions have immunity from civil and criminal liability relating to the making or not making of a report.

Commissioner of Financial Regulation - Investigative and Enforcement Powers, HB727 - Chapter 663 This law gives the Maryland Commissioner of Financial Regulation extraordinary powers to investigate any person who may have violated a law, regulation, rule or order over which the Commissioner has jurisdiction and to impose sanctions if she believes a violation has (or is about to) occur. Depository institutions with branches in Maryland and their affiliates are exempt, except that consumer loan law licensees/affiliates are subject to an increase in the Commissioner's cease and desist powers.

LENDING - SECURED BY REAL PROPERTY

Personal Property Tax - Lien for Unpaid Taxes, SB12/HB157 - Chapter 498/Chapter 499 This law makes it clear that land transferred by deed pursuant to a foreclosure or other judicial sale is free and clear of, and unencumbered by, any lien or claim of lien for unpaid personal property taxes recorded after the encumbrance giving rise to the transfer of the land was recorded.

Revolving Credit Plans - Access to Home Equity Credit Through Use of Credit Device, HB698 - Chapter 631 Since 1983, Subtitle 9 of the Maryland Credit Laws has prohibited credit card access to home equity lines. This prohibition raised questions about whether deposit accounts with debit card access could allow the use of home equity lines to cover overdrafts. Beginning October 1, 2000, credit card and debit card access to home equity lines will be permitted. Lenders wanting to take advantage of this opportunity must change disclosures, forms and procedures.

Maryland Home Builder Registration Act, SB380 - Chapter 522 This law creates a home builder registration unit in the Office of the Attorney General, Division of Consumer Protection. Lenders undertaking the completion of a builder's unfinished project because the builder defaulted are exempt from registration, provided a registered home builder completes construction. However, an exempt lender remains subject to some of the consumer protections contained in the law.

Credit Regulation - Mortgage Lending, HB1337 - Chapter 691 This law changes the way business will be done by licensed mortgage lenders and all mortgage brokers. For the first time, pre-approval must be obtained from the Maryland Commissioner of Financial Regulation for a change in control of a mortgage lender licensee. Pre-approval by the Commissioner of a change in office location will now take up to 60 (rather than 30) days. Mortgage broker agreements may need to be rewritten and must be delivered to the borrower within a certain time period. The law also prohibits mortgage brokers from being affiliated in any way with mortgage lenders. Criminal penalties for willful violations of the Mortgage Lender Licensing Law increase from a fine of $5,000 and 1 year in prison to a fine of $50,000 and 10 years in prison. Mortgage lenders and brokers must review this law to determine what changes it requires for their operations beginning October 1, 2000.

Homeowners' Property Tax Credit - Home Purchasers - Residency Eligibility, HB589 - Chapter 393 This law makes eligibility for Maryland's homeowner's property tax credit dependent on the home purchaser occupying the property for the remainder of the tax year for which the credit is sought. This law applies to credits for tax years beginning after June 30, 2001.

Homeowners' Property Tax Credit - Home Purchaser Applications, HB590 - Chapter 394 This law authorizes home purchasers to apply for Maryland's homeowner's property tax credit within 7 days after signing a contract of sale and possibly obtain approval for the credit prior to settlement on the home purchase. This law applies to credits for tax years beginning after June 30, 2000.

Mortgage Lenders - Continuing Education Requirements, HB1203 - Chapter 674 This law makes the continuing education requirements for mortgage lender licensees apply to the first renewal of a license. Thus, existing licensees must meet the 20-hour education requirement by December 31, 2001. Final regulations explaining these continuing education requirements have been published by the Commissioner of Financial Regulation.

LENDING - SECURED BY PERSONAL PROPERTY

Automobile Insurance - Proof of Insurance, HB1129 - Chapter 460 This law specifies what information must be provided by an insurer to a person, including a lender, with an insurable interest in an automobile upon a request for proof of insurance.

Recordation Tax - Security Agreements Filed with Department of Assessments and Taxation, HB1246 - Chapter 679 (effective July 1, 2001) Concurrent with the effectiveness of Revised Article 9 of the Uniform Commercial Code on July 1, 2001, Maryland recordation tax will not apply to financing statements filed with the Maryland State Department of Assessments and Taxation. Financing statements filed in the land records as fixture filings and real estate mortgages and deeds of trust will continue to be subject to the recordation tax, and the taxing authorities are expected to scrutinize tax avoidance strategies, such as indemnity deeds of trust, much more closely to recapture the tax revenue lost through this new law.

LENDING AND LEASING IN GENERAL

Motor Vehicle Titling Tax - Exercise of Option to Purchase Under Vehicle Leasing Agreement, HB220 - Chapter 349 (effective July 1, 2001) This law eliminates the "double taxation" currently faced by leasees who buy a motor vehicle at the end of the lease term. However, the operation of this law is contingent on certain bond payments/retirement.

Business and Economic Development - Financing Programs Consolidation Act of 2000, SB783 - Chapter 305 This law establishes a linked-deposit lending program coordinated through the Maryland Department of Business and Economic Development for eligible small businesses located in counties with high unemployment.

LAWS OF GENERAL INTEREST TO BUSINESSES

Consumer Protection - Contracts - Late Fees, SB145 - Chapter 59 (effective June 1, 2000) This new Maryland law overrules a 1999 case that concluded late fees are limited to the legal usury limit of 6% per annum unless charged under authority of a separate law (e.g., like a consumer credit law that authorizes late fees). The late fee for non-consumer contracts may be any amount provided by contract. A contract that requires a late fee (whether commercial or consumer) must disclose in the contract or by a separate notice the amount of the fee, any conditions, and timing for the imposition of the fee. For consumer contracts, the law initially authorizes monthly late fees of $10, or 10% of the past due payment amount, whichever is greater. However, beginning October 1, 2000, the permissible monthly late fee in a consumer contract is reduced to $5, or 10% of the past due amount, whichever is greater. No more than 3 monthly late fees may be imposed for any single late payment. Alternatively, the late fee may be up to 1.5% per month of the past due amount. The late fee must be disclosed, in the consumer contract or by notice, in type at least equal to 10-point bold type. The late fee may not be imposed on the consumer until 15 days after the payment becomes due. This law does not affect any late charge otherwise allowed under applicable law. For example, late charges are authorized under the Maryland Credit Laws for loans and credit sales and creditors may continue to impose these late fees and ignore this new law.

Corporate Charter Computerization and Administration Fund, HB16 - Chapter 324 This law increases the fee collected by the Maryland State Department of Assessments and Taxation for documents filed and processed on a same day, or "expedited," basis from $30 to $50.

Corporations and Real Estate Investment Trusts - Miscellaneous Provisions, HB851 - Chapter 642 (effective June 1, 2000) This law changes several corporate laws. Maryland corporations are now permitted to condition any provision in the bylaws upon "facts ascertainable outside the bylaws," such as outside events, documents, agreements, actions or determinations. REIT subsidiaries may issue shares to up to 100 persons for free, in order to qualify the subsidiary as a REIT. Additional tax requirements, however, may apply. The required number of directors of a corporation has been decreased from 3 (where there are 3 or more stockholders) to 1, and directors may have more or less than one vote if the corporation's Articles of Incorporation provide for it. A director's ability to seek indemnification in a proceeding brought by the director against the corporation is now limited under certain circumstances. Stockholders who hold stock other than common stock may vote by consent, even if the consent is not unanimous. Dissenting stockholders may no longer seek appraisal rights where the corporation's stock is listed on the NASDAQ Small Cap Market. The law improves the anti-takeover effect of the "Control Share Acquisition" statute by defining a "control share acquisition" as an acquisition of 10%, rather than 20%, of the outstanding shares.

Maryland Uniform Electronic Transactions Act, SB3 - Chapter 8 (See above under "E-Commerce")

Maryland Uniform Computer Information Transactions Act, HB19 - Chapter 11 (See above under "E-Commerce")

ESTATES AND TRUSTS

Inheritance Tax - Exception for Lineal Beneficiaries and Siblings, SB1 - Chapter 497 (effective July 1, 2000) This law repeals the inheritance tax on property inherited by the children, step-children, grandchildren, spouses, parents, grandparents, siblings, spouses of children or lineal descendents or the family corporation of a decedent who dies on or after July 1, 2000.

Uniform Principal and Income Act, SB 636 - Chapter 497 This law repeals the Maryland version of the Uniform Principal and Income Act and replaces it with the Uniform Principal and Income Act of 1997. The new law refines old rules for identification and allocation of trust principal and income and provides new rules dealing with modern investment opportunities, disbursements made due to environmental laws and adjustments between principal and income for tax purposes.

Estates and Trusts - Small Estates - Maximum Property Value, HB322 - Chapter 118 This law raises the maximum value of an estate that may be considered a "small estate" from $20,000 to $30,000. The law also allows an estate with a value not exceeding $50,000 at the time of the descendent's death to be eligible for administration as a small estate if the surviving spouse is the sole heir.

Estates and Trusts - Personal Representatives, Trustees and Fiduciaries - Donation of Conservation Easement, HB456 - Chapter 603 This law authorizes a personal representative, trustee or guardian of a minor or disabled person to donate a conservation easement on real property. The law applies retroactively to a donation of a conservation easement from the estate of a descendent who died on or after January 1, 1998.

LAWS AFFECTING LICENSING AND LICENSEES

Check Cashing Services - Licensing - Maximum Fees, HB516 - Chapter 614 (See above under "Depository Institutions")

Commissioner of Financial Regulation - Investigative and Enforcement Powers, HB727 - Chapter 663 (See above under "Depository Institutions") Credit Regulation - Mortgage Lending, HB1337 - Chapter 691 (See above under "Lending - Secured by Real Property") Mortgage Lenders - Continuing Education Requirements, HB1203 - Chapter 674 (See above under "Lending - Secured by Real Property")

Copies of these laws may be obtained from the Maryland General Assembly website at www.mlis.state.md.us.

If you have any questions about these laws, or need help implementing them, please call our attorneys in the Financial Services Group:

Andy Bulgin, 410-576-4280
D. Robert Enten, 410-576-4114
Peter B. Rosenwald, III, 410-576-4193