Maryland Legal Alert for Financial Services

In this issue:

• WILL THE LOAN ORIGINATOR COMPENSATION RULE BECOME EFFECTIVE?
• GARNISHMENTS: BANKS MUST CHANGE PRACTICES BY MAY 1, 2011
• ACTION PLANS FOR NEW PREEMPTION PARADIGM UNDER DODD-FRANK
• ADVERSE ACTION & RISK-BASED PRICING - PROPOSED AMENDMENTS
• EXEMPTION FROM TRUTH IN LENDING ACT WILL CHANGE

WILL THE LOAN ORIGINATOR COMPENSATION RULE BECOME EFFECTIVE?

Last month we reported on the Federal Reserve Board rule, schedule to be effective April 1, 2011, which implements significant changes in residential mortgage loan originator compensation. Over recent weeks we have assisted clients in establishing new compensation plans and revising mortgage loan broker agreements for compliance with both Maryland and federal law. Late on March 31, 2011, the United States Court of Appeals for the District of Columbia ordered that the federal rule not go into effect as scheduled. The appeals court will consider whether a lower court’s ruling against stopping the rule was correct. We predict that before our next monthly newsletter we will know if this rule is effective. In the meantime, we wait. Please contact Margie Corwin with questions or, if the rule becomes effective, for assistance with Maryland and federal compliance issues.

GARNISHMENTS: BANKS MUST CHANGE PRACTICES BY MAY 1, 2011

A new federal rule regarding bank garnishments requires all depository institutions to re-evaluate and, in most cases, change the way they process garnishments. In Maryland, one obvious change is that the current rule, which imposes a “continuing obligation” to hold funds deposited into an account after service of the writ of garnishment, will not apply to certain accounts. Under the new federal rule, accounts into which identified federal benefit payments were deposited during the two months preceding service of the writ and review of the institution’s account records will not be subject to the normal “continuing obligation” requirement. Rather, those accounts will be subject to a “snapshot” requirement (similar to an IRS levy). The federal rule also imposes a new notice requirement in connection with those same accounts and may lead to changes in what the institution normally states in its answer to a Maryland writ of garnishment. Please contact Margie Corwin or John Lee if you would like to discuss how the new federal garnishment rule impacts your operations in Maryland.

ACTION PLANS FOR NEW PREEMPTION PARADIGM UNDER DODD-FRANK
All banks should have their preemption planning underway. As previously reported in our Dodd-Frank Survival Guide, depository institutions that rely on federal preemption of "state consumer financial laws" should perform a preemption analysis to be sure that operations and product changes are implemented before July 21, 2011. For example, Maryland’s law that governs most revolving credit plans prohibits “balloon payments.” Many mortgage lenders offering home equity lines of credit in Maryland have relied on federal preemption (in the Alternative Mortgage Transaction Parity Act) to make HELOCs with balloon payments. Beginning July 21, 2011, this preemption is gone and balloon payments on HELOCs in Maryland will be impacted. Other Maryland laws that need to be considered include: notices to customers when issuing ATM access devices; payment of at least 3% annual interest on "Christmas," "vacation," and other special purpose accounts; interest of at least 3% paid on residential mortgage loan escrow accounts; limits and disclosures related to residential mortgage loan closing costs and attorney fees; express election of governing Maryland credit law; and more. Please contact Margie Corwin or Carla Witzel if you have questions about the impact of Dodd-Frank on preemption of Maryland laws.

ADVERSE ACTION & RISK-BASED PRICING - PROPOSED AMENDMENTS

In the March 15, 2011 Federal Register, the Federal Reserve Board and the Federal Trade Commission published proposed rules to amend the model adverse action and risk-based pricing notices. These proposed amendments modify the Notices to include the disclosure of credit scores and related information if a credit score is used in taking adverse action or in setting the material terms of credit. These changes reflect the requirements of section 1100F of the Dodd-Frank Act, and are expected to be effective on July 21, 2011. If you have any questions about these proposed amendments, please contact John Morton.

EXEMPTION FROM TRUTH IN LENDING ACT WILL CHANGE
Another change brought about by Dodd-Frank impacts a long standing Truth-in-Lending Act exemption. Lenders that do not comply with the Truth in Lending Act for consumer credit in excess of $25,000 take note: this exemption will increase to $50,000 beginning July 21, 2011. Private banking programs and hard money lenders come to mind. Please contact Carla Witzel or Margie Corwin for more information.