Maryland Legal Alert for Financial Services
Maryland Legal Alert - July 2024
In This Issue
CFPB Announces Proposed Rule to Ban Use of Consumer Medical Debt
Maryland Court Holds Licensing Required to Take Assignment of HELOC
CFPB Requires Nonbanks to Publicly Register Consumer Law Violations
CFPB Announces Proposed Rule to Ban Use of Consumer Medical Debt
The Consumer Financial Protection Bureau (CFPB) released a proposed new rule to change Regulation V. The proposed rule aims to prevent medical debt from being used as a factor in determining credit eligibility. Specifically, the proposed rule suggests removing the financial information exception that allows creditors to use a consumer's medical financial information for credit decisions and preventing consumer reporting agencies from furnishing a consumer's medical information to creditors. These changes would apply to most creditors, except for those excluded from coverage under Section 1029 of the Consumer Financial Protection Act (CFPA). The proposed rule still allows creditors to consider a consumer's medical information related to income, benefits, or loan purpose, but creditors must treat this information no less favorably than nonmedical information and creditors cannot consider a consumer's health condition, history, treatment, or prognosis when making credit decisions.
Furthermore, the CFPB is proposing to redefine the term "medical information" as it pertains to debt. The new definition would include only medical debt that a consumer owes, or previously owed, to a health care provider or its agent, relating to services provided to a human being. This would cover medical debt that has been sold or resold, debt assigned to a debt collector, civil judgments arising from debt collection actions, and debt related to cosmetic surgeries or elective medical procedures. However, medical debt owed to a third-party lender (including a medical credit card issuer) and debt related to veterinary care would be excluded from this definition. Additionally, the CFPB's proposed rule adds a definition of medical debt information to clarify which types of medical debts creditors would be prohibited from considering, and which information consumer reporting agencies would be precluded from listing on a consumer's credit report. Medical debt information would be defined as "medical information pertaining to a debt owed by a consumer to a person whose primary business is providing medical services, products, or devices (e.g., a medical or health care provider), or to the person's agent or assignee, for the provision of such medical services, products, or devices." The CFPB believes that these changes would help creditors and credit furnishers better understand how medical debt information can be used and would assist with compliance with the proposed rule.
The CFPB comment period closes on August 12, 2024.
For more information, 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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Maryland Court Holds Licensing Required to Take Assignment of HELOC
Maryland’s intermediate appellate court (the Appellate Court of Maryland) recently held that compliance with Maryland installment loan and mortgage lender licensing were required to take assignment of a home equity line of credit (HELOC). The HELOC was originated by a lender that was a “credit grantor” under the Credit Grantor Revolving Credit Provisions of the Commercial Law Article (Subtitle 9). The case involved a Delaware statutory trust that took assignment of the HELOC from a mortgage lender that met the definition of “credit grantor” under Subtitle 9. The loan documents concerning the HELOC made an express election of Subtitle 9. Approximately 10 years after the HELOC was originated and when the borrower had defaulted, the assignee took steps to collect through a foreclosure proceeding. The borrower’s estate (the borrower died during the foreclosure proceeding) objected to the efforts to collect the HELOC and filed a counterclaim alleging a number of alleged deficiencies on the part of the assignee, including that the assignee had not obtained required Maryland licensing under Maryland law.
The court agreed with the borrower’s estate, because the definition section of Subtitle 9 specifies that the term “credit grantor” includes a “person who acquires or obtains the assignment of a revolving credit plan made under this subtitle.” The assignee argued that no license should be required because of a separate provision of Subtitle 9 that provides that a credit grantor “making a loan or extension of credit” under Subtitle 9 is subject to the “licensing, investigatory, enforcement, and penalty provisions” in Subtitle 3 of the Financial Institutions Article (the installment loan licensing provisions), Additionally, if a lien on residential real property is obtained, a credit grantor making the loan would be subject to the “licensing, investigatory, enforcement, and penalty provisions” in Subtitle 5 of the Financial Institutions Article (the mortgage lender licensing provisions). The assignee argued that the “making a loan” language made clear the legislative intent that licensing required under Subtitle 9 is required only for those meeting the “credit grantor” definition who originate credit subject to Subtitle 9.
The court disagreed, holding that either the assignee needed to fit an exemption to the installment loan and mortgage lender licensing provisions (which it did not) or must comply with the related licensing provisions.
For more information, contact Christopher R. Rahl.
Contact Christopher R. Rahl | 410-576-4222
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CFPB Requires Nonbanks to Publicly Register Consumer Law Violations
On June 3, 2024, the Consumer Financial Protection Bureau (“CFPB”) issued the Nonbank Registration of Orders Final Rule, requiring certain nonbank entities to report final orders related to violations of consumer financial laws, which will be available to the public.
The rule applies to nonbanks providing consumer financial products or services but excludes, among others, FDIC insured depository institutions. Orders that must be registered are those final, public orders issued by agencies or courts that remain in effect on September 16, 2024, that name the nonbank as a party and require the nonbank to take, or refrain from taking, certain actions based on alleged legal violations.
If the nonbank has a qualifying order, the nonbank must submit detailed information about itself, a copy of the order and a recital of all laws that the nonbank allegedly violated. Certain nonbanks subject to CFPB supervision and with $5 million in qualifying annual receipts must additionally designate an executive to oversee the nonbank’s activities and to annually report any noncompliance with the subject order’s obligations.
Practice Pointer: Nonbanks should ensure they are prepared for these new requirements by reviewing existing orders that they are a party to, determining the applicability of this rule to such orders, and identifying the regulatory deadlines for compliance.
For more information, contact Natalie C. Gibson.
CONTACT NATALIE C. GIBSON | 410-576-4029
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