Maryland Legal Alert for Financial Services

NEW NET WORTH REQUIREMENTS FOR LICENSED MORTGAGE LENDERS AND BROKERS

More guidance on net worth requirements is available for Maryland licensed mortgage lenders and brokers through an Advisory Notice issued by the Commissioner of Financial Regulation on May 22, 2008. The new net worth requirements, imposed by Chapters 7 and 8 of the 2008 Laws of Maryland, must be met at the time of application for a new or renewal license and at any compliance exam that occurs after that time. The net worth requirements apply to the licensee as a single entity regardless of how many offices the licensee maintains. The Advisory describes documentation that will be acceptable proof of net worth. It also clarifies that a licensee who acts solely as a broker, and does not engage in any lending activity, is subject to the minimum net worth requirement of $25,000, regardless of the amount of loans brokered. Note: For Maryland law purposes, the person whose name is on the promissory note is a lender. Thus, if funds come from a third-party table funding source but the broker's name is on the promissory note, the broker is a “lender” for these net worth requirements. For licensees that act both as a lender and a broker, the required minimum net worth requirement is based only on loans where the licensee acted as a lender. This Advisory is required reading for every Mortgage Lender licensee. Please contact Chris Rahl if you have any questions.

FOURTH CIRCUIT AFFIRMS PUNITIVE AWARD UNDER FCRA AGAINST FURNISHER

On May 14, 2008, the United States Court of Appeals for the Fourth Circuit, in Saunders v. Branch Banking & Trust Company of Virginia, affirmed a punitive damages award in a suit where the plaintiff alleged that the Bank violated its duties as a furnisher of information under the Fair Credit Reporting Act (FCRA). This claim related to an indirect automobile credit arrangement that ended in repossession of the vehicle. The facts revealed that the Bank knew the plaintiff disputed the debt and that the plaintiff sought to resolve the dispute. When the plaintiff disputed the “in repo status” information furnished by the Bank to consumer reporting agencies, the Bank responded to the CRAs with a “charge-off” status and failed to indicate that the plaintiff had previously disputed the debt. The plaintiff brought suit under the FCRA arguing that the Bank furnished inaccurate information. On appeal, the court affirmed the jury's verdict of $1,000 compensatory damages and $80,000 punitive damages, holding that the FCRA requires more than technical accuracy and that failure to note that the debt was in dispute was substantially misleading. Even recognizing that bad facts make bad law, this case is instructive for furnishers of information subject to the FCRA. Please contact Chris Rahl if you have any questions.

EXEMPTION FROM CREDIT SERVICES BUSINESSES ACT FOR CERTAIN TAX PREPARERS

The Commissioner of Financial Regulation issued an Advisory Notice on May 15, 2008 limiting application of the Credit Services Businesses Act to certain companies that assist taxpayers in obtaining Refund Anticipation Loans (RALs). The Advisory concludes that the Act's interest rate limitations, which prohibit a credit services business from assisting consumers with loans at interest rates in excess of those permitted by Maryland law, do not apply to third-party agents of federally chartered depository institutions, but only when those agents are properly regulated by the IRS as electronic refund originators. All other provisions of the Act will be enforced against tax preparers that facilitate RALs, even when such businesses act as agents of federally chartered depository institutions. Please contact Chris Rahl if you have any questions.

NEW NOTICE OF FORECLOSURE FILING IS AVAILABLE

Chapters 1 and 2 of the 2008 Laws of Maryland require that a foreclosure action on “residential property” be accompanied by a specific notice to the mortgagor in a form prescribed by the Commissioner of Financial Regulation. The Notice has been issued through emergency regulation and is found on the Commissioner's website but has not yet been published in the Maryland Register. Please contact Chris Rahl if you have any questions.

WHEN IS A LOAN APPLICATION COMPLETED? PROPOSED REGULATIONS FOR MORTGAGE BROKERS

Maryland law requires that a copy of the completed broker agreement, dated and signed by both the broker and the borrower, be provided to the borrower within 10 business days after the date the loan application is completed. In the May 23, 2008 Maryland Register, the Commissioner of Financial Regulations published proposed regulations to clarify when a “loan application is complete” for these purposes. This proposed regulation reflects the position asserted by the Commissioner's examiners in recent years that “completed application” is triggered by obtaining a credit report and could significantly limit the arguments brokers have been making when examiners question the timeliness of delivering the broker agreement. The Commissioner will accept comments on this proposal through June 24, 2008. Please contact Chris Rahl if you have any questions.

LEMON LAW – PLAINTIFF IS REQUIRED TO PROVE DEFECTIVE CONDITION THROUGH EXPERT TESTIMONY

On May 29, 2008, the Maryland Court of Special Appeals issued an opinion in Laing v. Volkswagen of America, Inc., affirming the dismissal on summary judgment of a plaintiff's lawsuit against Volkswagen of America, Inc. for his allegedly defective 2004 Volkswagen automobile. The plaintiff made claims under the Maryland Automotive Warranty Enforcement Act, the Magnuson-Moss Warranty Act, and the Maryland Consumer Protection Act. The court held that circumstantial evidence of defects was insufficient to sustain the plaintiff's burden of production and that “favorable expert testimony was necessary.” Please contact Chris Rahl if you have any questions.

© 2008 Gordon Feinblatt, LLC. MARYLAND LEGAL ALERT is intended for informational purposes only and is not legal advice to any person, entity or firm. The material included in MARYLAND LEGAL ALERT is obtained from a variety of public sources.