Maryland Legal Alert for Financial Services

In This Issue

CFPB Proposes Rule to Supervise Providers of Digital Wallets and Payment Apps

CFPB Bans Third-Party Medical Debt Furnisher from Collection Practices 

Does the Automatic Stay Apply to a Debtor's Possessory Interest in a Property?

Maryland Minimum Interest Rate for Escrow ad Special Purpose Accounts

CFPB Proposes Rule to Supervise Providers of Digital Wallets and Payment Apps

On November 7, 2023, the Consumer Financial Protection Bureau (CFPB) introduced a rule proposing that non-bank companies that offer digital wallets and payment apps should be subject to the same federal supervisory regulations as banks and credit unions. The proposal comes as a response to the growing popularity of digital payment services and the consumer risks associated with the lack of CFPB oversight on providers of these services.

The proposed rule targets large companies that provide at least 5 million covered consumer payment transactions through a digital app, covering about 88% of the market share of non-bank providers. Transactions subject to this rule include most consumer-to-person and consumer-to-merchant transactions, but exclude transactions between non-US based persons, consumer credit extensions, and exchanges of funds to buy or sell securities.

Companies above the transaction threshold and engaging in qualified transactions would face heightened scrutiny from the CFPB, meaning the CFPB may request information from, monitor, and conduct on-site compliance examinations for impacted companies.  The CFPB comment period for the proposed rule closes in early January of 2024.  

Practice Pointer: Businesses within the scope of this proposed rule should continue to monitor the status of this proposed rule and be prepared to make needed process changes should the rule be implemented (including any needed adjustments to existing compliance management systems). 

For questions about this topic, please contact Christopher R. Rahl or Natalie C. Gibson.

Contact Christopher R. Rahl | 410-576-4222

Contact Natalie C. Gibson | 410-576-4029

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CFPB Bans Third-Party Medical Debt Furnisher from Collection Practices 

On December 15, 2023, the Consumer Financial Protection Bureau (CFPB) issued a consent order against a third-party medical debt collection company, permanently banning the company from engaging in debt collection activity and requiring the company request that consumer reporting agencies delete all consumer accounts to which it had previously furnished information. 

The CFPB found that the company failed to establish and implement written policies and procedures to ensure the accuracy and integrity of information it furnished to consumer reporting agencies; failed to conduct reasonable investigations of direct and indirect disputes about information furnished; and failed to notify consumers of the results of direct dispute investigations, all in violation of the Fair Credit Reporting Act (FCRA) and its implementing Regulation V. 

In its investigation, the CFPB noted that the company’s written policies and procedures failed to provide any guidance on how to investigate disputes, including lack of instructions on how to determine which disputes have merit, how to consider and obtain supporting documentation from consumers, and how to handle disputes when the documentation and the consumer’s allegations contradict each other. Moreover, the company lacked adequate staffing to effectively carry out a reasonable investigation of disputes.  Additionally, the CFPB found that the company violated the Fair Debt Collection Practices Act (FDCPA) by: (a) sending debt collection letters to consumers before obtaining verification of the debt when the company had received a written dispute from the consumer within 30 days of the consumer’s receipt of a debt validation notice; (b) making false or misleading representations to consumers that they owed alleged debts when the company lacked a reasonable basis to such representations; and (c) communicating credit information about alleged debts to consumer reporting agencies but failing to inform the consumer reporting agencies that the debts were disputed.   

In addition to the permanent ban, the company was required to pay $95,000 to the CFPB’s victims relief fund.

Practice Pointer: The consent order serves as a reminder to creditors of the importance of a strong compliance management system designed to ensure the accuracy and integrity of furnished credit reporting information and the proper processing of disputes of furnished information (including the requirements in Regulation V, Appendix E). 

For more information concerning this topic, please contact Christopher R. Rahl or Tamia J. Morris.

Contact Christopher R. Rahl | 410-576-4222

Contact Tamia J. Morris | 410-576-4021

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Does the Automatic Stay Apply to a Debtor's Possessory Interest in a Property?

When a debtor files for bankruptcy, an injunction called the automatic stay is imposed which temporarily prevents creditors from trying to collect money or seize property from debtors in bankruptcy. The automatic stay acts to freeze or preserve the status quo to serve the twofold purpose of protecting creditors to ensure equality of distribution among creditors and giving the debtor breathing spell from its creditors.

However, when an insolvent debtor has a possessory interest in a property that the insolvent debtor does not own, does a bankruptcy filing trigger the automatic stay with regards to the possessory interest and will a foreclosure sale of the property violate the automatic stay?  In other words, if the insolvent debtor is living in the property which he does not entirely own, is the creditor still allowed to foreclose on the property even when the debtor has a possessory interest in the property? The answer to this question depends on whether the possessory interest is considered part of the bankruptcy estate and the jurisdiction in question. 

In the Fourth Circuit, the Court in In re Premier Auto. Servs., Inc., 492 F.3d 274, 281 (4th Cir. 2007) said that “[a] mere possessory interest under an expired lease is insufficient to trigger an automatic stay under 11 U.S.C.S. § 362(a)”.  The automatic stay excludes from its protections nonresidential real property leases that expire before the commencement of or during a case. 

However, the result may be different in other circuits as it relates to unexpired leases.

See Bayview Loan Servicing LLC v. Fogarty (In re Fogarty), 39 F.4th 62, 75 where the Court found that the automatic stay provisions of § 362(a)(1) and (a)(2) were violated by the foreclosure sale of the property owned by an LLC when the debtor is a named party in the foreclosure proceedings, even if the debtor holds only a possessory interest in the property. 

Thus, by foreclosing on a property, a creditor could violate the automatic stay because it is a continuation of a claim against the debtor and against the debtor’s estate where the possessory interest in the property is considered a part of the bankruptcy estate. 

The penalties for violating the automatic stay are outlined under §362(h) and can include damages, attorney fees and punitive damages for willfully violating the automatic stay. Thus, it is imperative that creditors are well advised before taking adverse action after an insolvent debtor has filed for bankruptcy. 

For questions about this topic, please contact Ebele U. Ebonwu. 

Contact Ebele U. Ebonwu | 410-576-4082

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Maryland Minimum Interest Rate for Escrow and Special Purpose Accounts

Maryland law requires certain depository institutions doing business in Maryland that make first lien residential real property loans and maintain escrow accounts for those loans to pay a minimum rate of interest on those escrow accounts. Maryland law also requires Maryland-chartered banks that offer certain short-term “special purpose” deposit accounts (for example, Christmas Club accounts) to pay a minimum rate of interest on those deposit accounts. 

The minimum rate of interest on these accounts is based on the weekly average yield of U.S. Treasury Securities adjusted to a constant maturity of one year as of the first business day of the calendar year as published in the Federal Reserve Board’s “Selected Interest Rates” table H.15. Because the Federal Reserve Board’s H.15 table no longer includes a “weekly average yield” for the selected one-year securities, many institutions look to the weekly average yield interest rate data posted by the Federal Reserve Bank of St. Louis (using the H.15 daily rate information). 

The Federal Reserve Bank of St. Louis displays a 4.81% weekly average yield for U.S. Treasury Securities adjusted to a constant maturity of one year (reflecting the weekly average yield for the weekly period ending on December 29, 2023, as posted on January 2, 2024).

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

Contact Christopher R. Rahl | 410-576-4222

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