Maryland Legal Alert for Financial Services

In This Issue:

DLLR ADVISORY RAISES ADDITIONAL CONVENIENCE FEE CONCERNS FOR LENDERS

CFPB FINES NATIONAL BANK FOR CROSS-BORDER GARNISHMENT PROCESSING PRACTICES

DEPARTMENT OF LABOR DISCOURAGES 401(k) PLANS FROM OFFERING CRYPTOCURRENCY AS AN INVESTMENT OPTION

DLLR Advisory Raises Additional Convenience Fee Concerns for Lenders

We reported in our May Maryland Legal Alert and our February Maryland Legal Alert about the Fourth Circuit Court of Appeals (Court) “convenience fee” decision from January 2022, holding that mortgage servicers are debt collectors under the Maryland Consumer Debt Collection Act (MCDCA). The Court held that convenience fees charged to borrowers who paid monthly mortgage bills online or by phone violated the MCDCA even though the borrowers were told they would incur the fee if they paid online or by phone.  The Court made clear that the MCDCA covers an entity that is not a typical third-party debt collector. Under the Court’s rationale, even a financial institution collecting its own debts could be a collector under the MCDCA.

On May 12, 2022 (supplemented with an address update on May 13, 2022), the Office of the Commissioner of Financial Regulation (Commissioner) issued an advisory concerning the Court’s decision.  The Commissioner’s advisory instructed all lenders and servicers (even lenders collecting their own debts) to: (1) review their records to determine if improper convenience fees have been assessed; and (2) undertake appropriate reimbursements to affected borrowers.  The advisory also instructs lenders and servicers that attempts to “circumvent” the decision by directing borrowers to a payment platform that collects such a fee; or requiring borrowers to amend existing loan documents to include the fee “could also violate Maryland law.”

Before taking any action to refund previously collected fees, financial institutions should consult with counsel regarding the state of existing Maryland law and applicable legal authority that could impact the necessity for taking action based on prior conduct.

For questions concerning this topic, please contact Christopher R. Rahl.

CONTACT CHRISTOPHER R. RAHL | 410-576-4222

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CFPB Fines National Bank for Cross-Border Garnishment Processing Practices

The Consumer Financial Protection Bureau (CFPB) recently entered into a consent order with a national bank that should set off alarm bells for any depository institution with a multi-state footprint. The consent order resolves the CFPB’s allegations that the national bank engaged in unfair and deceptive practices in its processing of bank account garnishments issued in states other than where the bank’s customer/judgment debtor resides (Out-of-State Garnishments).

It is relatively straightforward to process a garnishment when the debtor and the garnishee are located in the same state as the court that issued the writ. However, this consent order demonstrates that banks and credit unions with a multi-state footprint must carefully grapple with more complex compliance questions when processing Out-of-State Garnishments.

The CFPB identified the following practices as unfair and/or deceptive practices:

• Processing Out-of-State Garnishments in states with laws that prohibit or restrict garnishment of out-of-state bank accounts;
• Applying the wrong state’s exemption laws in response to Out-of-State Garnishments;
• Including in its deposit account agreement provisions (i) by which the customer “directs” the bank not to contest legal process, and (ii) which purport to waive the bank’s liability to the customer for accepting service of process; and
• Misrepresenting to customers that customers had waived their right to hold the bank liable for processing improper garnishments.

The consent order requires the bank to refund garnishment-related fees, review and reform its garnishment processing system, revise its deposit account agreements, and pay a $10 million fine.

Practice Pointer: Banks and credit unions with multi-state footprints should review their processes and deposit account agreements in light of this consent order. Among other things, institutions should review the garnishment, exemption, and service of process laws for each state in their footprint.

For questions concerning this topic, please contact Bryan M. Mull.

CONTACT BRYAN M. MULL | 410-576-4227

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Department of Labor Discourages 401(k) Plans From Offering Cryptocurrency as an Investment Option

In Compliance Assistance Release No. 2022-01, the U.S. Department of Labor recently discouraged in strong terms 401(k) plans from offering cryptocurrencies as investment options. (DOL's position would apply equally to 403(b) plans.)

DOL urged plan fiduciaries to “exercise extreme care before they consider adding a cryptocurrency option to a 401(k) plan’s investment menu for plan participants.” The DOL didn’t mince words: “At this early stage in the history of cryptocurrencies, the Department has serious concerns about the prudence of a fiduciary’s decision to expose a 401(k) plan’s participants to direct investments in cryptocurrencies, or other products whose value is tied to cryptocurrencies.”

DOL suggested that a 401(k) plan that offered cryptocurrency as an investment option would be investigated. DOL said it “expects to conduct an investigative program aimed at plans that offer participant investments in cryptocurrencies and related products, and to take appropriate action.”

DOL further stated that plan fiduciaries who allow cryptocurrency investments "should expect to be questioned about how they can square their actions with their duties of prudence and loyalty . . .”

DOL’s warning was recently underscored by the precipitous drop in crypto markets, which lost more than $270 billion.

Practice Pointer: It would be unduly risky for plan fiduciaries to offer cryptocurrencies as an investment option. Such a decision would expose plan fiduciaries to lawsuits by DOL and plan participants. In short, don’t do it.

For questions about this topic, please contact Theodore P. Stein.

CONTACT THEODORE P. STEIN | 410-576-4229

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