Maryland Legal Alert for Financial Services

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Maryland Legal Alert - August 2024

In This Issue

Maryland Laws Update 2024

CFPB Proposes Rule Regulating Paycheck Advance Products

Maryland Regulation of Shared Appreciation Agreements 

 

Maryland Laws Update 2024

The 2024 Maryland legislative session resulted in a number of new laws impacting financial services providers.  We recently released our Maryland Laws Update summarizing each new law.  The full release is available HERE.  The full text of each underlying bill can be found on the Maryland General Assembly’s website available HERE.     

For more information, please contact Christopher R. Rahl.

Contact Christopher R. Rahl | 410-576-4222

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CFPB Proposes Rule Regulating Paycheck Advance Products

On July 18, 2024, the Consumer Financial Protection Bureau (CFPB) issued a proposed rule that would regulate earned wage access products as traditional credit products.

Traditional earned wage access products allow consumers to access their earned wages before a scheduled pay date.  Earned wage access products have been treated outside of the “credit” regulatory framework because of a 2020 CFPB advisory that held that an earned wage access product was not an extension of credit if certain conditions were met.

The 2020 advisory relied on these characteristics of earned wage access offerings to determine at that time, that these products were not credit and not subject to disclosures under the federal Truth in Lending Act (TILA) and its implanting Regulation Z (Reg. Z):

  •  The product provided no more than the amount of accrued wages, 
  • The product was offered through a third party integrated with the related employer,
  • No consumer payment was required and the product provided no recourse or collection activities, and;  
  • No underwriting or credit reporting was included.

The recent proposed rule retracts the 2020 advisory and notes that it was issued for a narrow type of earned wage access product and caused industry confusion.

The new rule would apply to earned wage access products that involve the provision of funds to a consumer in any amount based on the wages of such consumer in a given pay cycle (even if by estimate) and provide for repayment of the advanced amount by  automatic means (e.g., payroll deduction or preauthorized debit).  Under the new rule, traditional “cost of credit” disclosures would be required in connection with a covered earned wage access product.  Notably, the proposed rule would expand the TILA and Reg. Z definition of “finance charge” to include voluntary fees (such as “tips” or “gratuities”) and expedited delivery fees.  The proposed rule has a comment period that closes on August 30, 2024.  

For questions concerning this topic, please contact Christopher R. Rahl.

Contact Christopher R. Rahl | 410-576-4222

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Maryland Regulation of Shared Appreciation Agreements 

As reported in our Maryland Laws Update in 2023, effective on July 1, 2023, certain “shared appreciation agreements” became subject to the Maryland Mortgage Lender provisions regulating extensions of residential closed-end and open-end credit.  Under the 2023 law, a “shared appreciation agreement” includes a transaction, option, future, or other derivative between a person and a consumer, where the consumer receives funds or other value in exchange for an interest or future interest in a dwelling or residential real estate, or a future obligation to repay a sum on the occurrence of certain events (e.g., transfer of ownership, a specified maturity date, the death of the consumer, or any other trigger event in the related writing).  On July 15, 2024, the Maryland Commissioner of Financial Regulation issued a notice of proposed regulation to implement the 2023 law change.  The proposed regulation addresses differences between traditional mortgage loans and shared appreciation agreements by adding definitions for certain terms frequently used in shared appreciation agreements, describes the required disclosures in shared appreciation agreements, includes procedures for calculating property values, and includes ability to repay standards.  The proposed regulation is out for comment until August 12, 2024.  

For questions concerning this topic, please contact Christopher R. Rahl.

Contact Christopher R. Rahl | 410-576-4222

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Date

August 05, 2024

Type

Publications

Author

Rahl, Christopher R.

Teams

Financial Services