Maryland Legal Alert for Financial Services

• PREEMPTION OF MARYLAND BALLOON PAYMENT PROHIBITION EXPECTED TO END
• FINALLY, A SENSIBLE INTERPRETATION OF THE CREDIT SERVICES BUSINESSES ACT
• ACTION FILED DEMANDING REFUND OF RECORDATION TAXES
• DODD-FRANK: SCOPE OF CFPB’S AUTHORITY IS AWE INSPIRING
• FOLLOW-UP ON NEW GARNISHMENT RULES

PREEMPTION OF MARYLAND BALLOON PAYMENT PROHIBITION EXPECTED TO END
During May 2011, the federal preemption changes expected as a result of the Dodd-Frank Act took unexpected twists. The May 12 interpretive letter issued by the Acting Comptroller of the Currency and the OCC’s proposed regulations, published in the May 26 Federal Register, suggest that under Dodd-Frank Section 1044 most of the OCC’s preemption regulations will be left intact after July 21, 2011 (the “designated transfer date”). While we expect continuing developments regarding the OCC’s position on federal preemption, it is important to recognize that not all Dodd-Frank Act preemption changes arise from Section 1044. Specifically, Dodd-Frank Section 1083 changes the federal preemption afforded certain mortgage loans since 1982 under the Alternative Mortgage Transaction Parity Act (AMTPA). In a nutshell, due to changes in the definition of “alternative mortgage transaction,” AMTPA will no longer preempt Maryland’s law that prohibits balloon payments in connection with home equity lines of credit. This change to AMTPA is effective for contracts entered into after the “designated transfer date.” Lenders need to review HELOC plans offered in Maryland to determine if those plans offer a “balloon payment” and consider the need to change plans going forward. We strongly recommend that HELOC lenders contact legal counsel on this issue. Carla Witzel or Margie Corwin are happy to discuss this Maryland HELOC issue or federal preemption in general.

FINALLY, A SENSIBLE INTERPRETATION OF THE CREDIT SERVICES BUSINESSES ACT

On March 31, 2011, the Court of Special Appeals of Maryland in Gomez v. Jackson Hewitt held that a tax preparation business that facilitated a refund anticipation loan from a lender, and received no fee from the borrower for this service, was not a “credit services business” (CSB) subject to the Maryland Credit Services Businesses Act (CSBA). The CSBA has been adopted in substantially similar form in at least 38 states, and the federal government followed the states’ lead in adopting the Credit Repair Organization Act. While intended to target unscrupulous credit repair agencies that claim to offer services to improve a consumer’s credit by removing derogatory, but true, information from credit reports, and that often perform no services at all after charging large up front fees, these state and federal laws have been broadly interpreted by several courts. The Court of Special Appeals wisely looked at the entire statute, which clearly is focused on fixing credit reports, and carefully read the definition of “credit services business,” which requires that the business provides services “in return for the payment of money,” to conclude that the tax preparation business was not a CSB because it received no payment from the consumer for the services. We applaud the Court of Special Appeals. The decision has not been appealed. If you have questions about this opinion, please contact Carla Witzel.

ACTION FILED DEMANDING REFUND OF RECORDATION TAXES

Our Real Estate Practice Group recently filed claims on behalf of a number of clients for refund of recordation taxes paid to Howard County, Maryland. In each situation, an indemnity deed of trust (IDOT) was used to secure a commercial loan. Based on an unrelated transaction at a later time, there was a desire to record a deed (transfer) of the property. Howard County refused to record the deeds until recordation taxes were paid on the previously recorded IDOTs. Our clients were required to pay the recordation taxes related to the IDOTs to Howard County in order to get the new deeds recorded. This is not the practice in any other Maryland county or Baltimore City and we believe that such practice is contrary to opinions of the Maryland Attorney General. The attached bulletin will be of interest if you are or have been forced to pay recordation taxes on IDOTs and you believe those taxes are not your obligation. Please contact Ed Levin, Neil Schechter, or Bill Shaughnessy for more information.

DODD-FRANK: SCOPE OF CFPB’S AUTHORITY IS AWE INSPIRING
Want a convenient reference source for the very long list of rules that the new federal Consumer Financial Protection Bureau is expected to enforce? A list is published in the May 31, 2011 Federal Register. It includes regulations currently enforced by the Federal Reserve Board, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, Office of Thrift Supervision, National Credit Union Administration, Federal Trade Commission, and the Department of Housing and Community Development. If anyone had any doubt about the huge scope of the CFPB’s oversight and enforcement authority, that doubt is eliminated by this list. Please contact Margie Corwin or Carla Witzel if you would like to discuss the CFPB or Dodd-Frank Act issues in greater detail.

FOLLOW-UP ON NEW GARNISHMENT RULES
In our May 2011 Maryland Legal Alert, we reported on changes to Maryland’s bank garnishment rules made in order to conform to the new federal rule. Please be reminded that the new rules, both federal and Maryland, apply only to court-issued writs of garnishment, with one exception. The exception, which applies only to the federal rule, provides that in addition to court-issued writs, the garnishment rule applies to non-judicial attachments by a state child support enforcement agency. Please be reminded that the new rules, both federal and Maryland, do not apply to non-judicial attachments issued for unpaid taxes by the Maryland Comptroller. Margie Corwin can answer questions you may have about garnishments in Maryland.