Legal Bulletins

Noteworthy Maryland Cases
Wells et al. v. Chevy Chase Banks, F.S.B. et al., 377 Md. 197, 832 A.2d 812 (2003) cert. denied 158 L. Ed. 2d 485, 124 S. Ct. 1875 (2004)
Subtitles 9 and 10 of the Maryland Credit Laws (Title 12 of the Commercial Law Article of the Maryland Annotated Code) do not apply unless these Subtitles are "elected" in the note. A federal thrift or national bank using or exporting the interest rates provided under Subtitles 9 or 10 must make this election. Generally, the governing law clause of a note provides that the note is governed by Subtitles 9 or 10, and applicable federal law.

The Supreme Court of the United States recently refused to review a Maryland Court of Appeals decision that arose as a class action lawsuit filed against Chevy Chase Bank, F.S.B. alleging the thrift violated Subtitle 9 when it amended its credit agreement without the notices required by that state law. The Maryland Court of Appeals held that the election of Subtitle 9 contractually bound Chevy Chase to comply with Subtitle 9, including Subtitle 9's amendment procedure, despite preemptive federal law. Thus, the Court found that although Subtitle 9 was preempted by federal law, it was specifically reincorporated into the note as a matter of contract.

Action Alert: All Maryland lenders should review the choice of law provisions contained in customer agreements. Federal preemptions are used not only by federally chartered thrifts, banks and credit unions, but also by state chartered institutions, first mortgage lenders, alternative mortgage transaction lenders, and others. The choice of law must clearly designate the applicable State usury statute and also clearly assert that applicable State and federal laws will govern the agreement for all other purposes.