Maryland Legal Alert for Financial Services

In This Issue

CFPB Credit Card Late Fee Proposal

FDIC Doubles Fines for Repeat RESPA Violations

NCUA Issues Guidance on Supervisory Priorities and CUSO Activities

Corporate Names are Irrelevant and Relevant to Trademarks

CFPB Credit Card Late Fee Proposal

On February 1, 2023, the Consumer Financial Protection Bureau (CFPB) issued a proposed rule to alter credit card late fee safe harbor amounts.  Currently, Regulation Z provides a safe harbor for credit card late fees in an amount up to $41 for each missed payment.  The current safe harbor amount stems from legislative changes in 2009 that instituted a $30 safe harbor that, after adjustments for inflation, has risen to the current $41 amount.  In keeping with the CFPB’s displeasure with so-called “junk” fees, the proposed rule would cut the safe harbor cap down to $8 and remove the inflation adjustment provisions.  The proposed change is based on the CFPB’s belief that a $41 late fee is grossly disproportionate to a card issuer’s actual cost in processing a missed payment.  Credit card issuers that wish to charge more than the $8 safe harbor would need to substantiate that a higher late fee is necessary to cover the related collection/processing costs.  The proposed rule would also prohibit any credit card late fees above 25% of the related required payment amount.  Comments concerning the proposed rule are due by April 3, 2023.

For more information concerning this topic, please contact Christopher R. Rahl.

CONTACT CHRISTOPHER R. RAHL | 410-576-4222

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FDIC Doubles Fines for Repeat RESPA Violations

An Oregon regional bank will be paying a $425,000 fine after entering into a consent order with the Federal Deposit Insurance Corporation (FDIC) for repeat violations of Section 8 of the Real Estate Settlement Procedures Act (RESPA). The order also involved violations of the Federal Trade Commission Act (FTCA) and the Fair Credit Reporting Act (FCRA).  The bank’s fine is twice the amount the same bank paid in 2019 for similar RESPA violations.  The FDIC alleged that the bank violated RESPA by entering into mortgage lead generation agreements with a real estate website and an online loan marketplace, which were used to facilitate and disguise referral payments for mortgage business.  The bank allegedly violated the FTCA through deceptive and misleading representations in its prescreened offers of credit, and allegedly violated the FCRA by obtaining the consumer reports of former loan clients without a legally permissible purpose.  The FDIC considered the size of the financial resources and good faith of the bank, the seriousness and number of violations, and the bank’s history of violations when determining the penalty.  

Operators of online mortgage shopping platforms should be vigilant in light of the FDIC’s willingness to issue an increased penalty for repeat violations, especially on the heels of the Consumer Financial Protection Bureau’s (CFPB) February 7 Advisory Opinion stating the CFPB’s intention to closely scrutinize these platforms for compliance with Section 8 of RESPA.  

Practice Point: Financial institutions and platform operators should be aware that a “non-neutral” use or presentation of material that steers a consumer to a settlement service provider or otherwise impacts the consumer’s choice is considered a referral and charging different fees to similarly situated service providers may be evidence of an illegal fee.  Referrals can be directed at consumers, real estate agents, title companies, lenders, brokers, or other companies that provide information regarding mortgage settlements.

For more information concerning this topic, please contact Christopher R. Rahl and Tonya R. Foley.

CONTACT CHRISTOPHER R. RAHL | 410-576-4222

CONTACT TONYA R. FOLEY | 410-576-4238

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NCUA Issues Guidance on Supervisory Priorities and CUSO Activities

Recently, the National Credit Union Administration (NCUA) issued two guidance documents of interest to federal credit unions (FCUs), both of which highlight potential risks pertaining to unfair, deceptive, or abusive acts and practices (UDAAPs).

In January, the NCUA issued its Supervisory Priorities for 2023. Among other priorities (such as interest rate risk, fraud protection, and data security) the NCUA noted that it intends to continue to review and monitor compliance with consumer financial protection laws and regulations. Consistent with broader industry trends, the NCUA signaled its renewed focus on FCUs’ overdraft programs, fair lending compliance (specifically as to real estate appraisals), Truth in Lending Act compliance, and Fair Credit Reporting Act compliance (including furnishing, adverse action notices, risk-based pricing, and consumer rights disclosures).

More recently, the NCUA issued follow-up guidance to its final Credit Union Service Organization (CUSO) rule, which became effective on November 26, 2021. Under the CUSO rule, the NCUA authorized FCUs to invest in and lend to CUSOs that engage in all types of lending permitted for FCUs, including auto loans, leases, payday alternative loans, and other unsecured consumer loans. In the fair lending arena, the NCUA cautioned that FCUs owning interests in CUSOs or utilizing CUSO for origination or servicing activities must ensure the CUSOs are complying with all fair lending obligations. Similarly, the NCUA stressed that, to avoid potential UDAAP exposure, FCUs must monitor their CUSO partners to ensure loan contract terms align with the FCUs’ policies and that the CUSOs do not blur the lines with members as to the CUSOs’ separate existence from the FCU.

For more information concerning this topic, please contact Bryan Mull.

CONTACT BRYAN M. MULL | 410-576-4227

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Corporate Names are Irrelevant and Relevant to Trademarks

An entity’s official corporate name is independent of the name the company uses in the marketplace as a trademark -- with one twist.  
A corporate name is an entity’s official name as filed with its state of formation.  A trademark is a brand an entity uses to identify its goods and services.  Because these purposes are different, a state corporate filing does not give an entity priority over use of a later adopted trademark.  If the entity uses the same words for its corporate name as its brand, it is only the trademark usage which is relevant to a trademark infringement analysis.  

Each state has its own rules for approving corporate names, and how close each name can be to another.  For example, the Maryland State Department of Assessments and Taxation (SDAT) regulations dictate that a corporation and an LLC can have the same exact name, so long as their “tail” indicating the type of entity is different, such as “Inc.” and “LLC.”  On the other hand, SDAT regulations do not allow the same name to be used within the same type of entity.  If an entity already exists as Zebra, Inc., SDAT will not allow formation of Zebra Incorporated, Limited, or Company, or any abbreviation of those tails.  

Although a corporate name generally does not bear on a trademark, if the entity would like its corporate name to match its brand, it needs to be sure – in states with regulations similar to Maryland’s –that its state of formation has not already granted the name to the same type of corporate entity.

For more information concerning this topic or any other IP-related issues, please contact Ned T. Himmelrich.

CONTACT NED T. HIMMELRICH | 410-576-4171

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