Maryland Legal Alert for Financial Services
Maryland Legal Alert - November 2023
In This Issue
Maryland Minimum Interest Rate for Certain Escrow Accounts
CFPB Advisory Concerning Illegal Junk Fees
Role of Immigration Status in Credit Decisions
Maryland Minimum Interest Rate for Certain Escrow Accounts
In the current rising interest rate environment, many financial institutions have expressed an interest in Maryland requirements concerning minimum interest rates for real property escrow accounts. In general, Maryland law requires 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.
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).
As we noted in our January 2023 Maryland Legal Alert, the Federal Reserve Bank of St. Louis displays a 4.73% 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 30, 2022, as posted on January 3, 2023). The 2022 weekly average yield was 0.37%.
Practice Pointer: It is worth noting that not all financial institutions making real property secured loans in Maryland are subject to the minimum escrow account interest rate requirement. The requirements generally apply to “lending institutions” which are defined as: any bank, savings bank, or savings and loan association doing business in Maryland.
For questions concerning this topic, please contact Christopher R. Rahl.
Contact Christopher R. Rahl | 410-576-4222
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CFPB Advisory Concerning Illegal Junk Fees
On October 11, 2023, the Consumer Financial Protection Bureau (CFPB) issued an Advisory Opinion addressing certain illegal “junk” fees. The opinion is based on provisions of the federal Consumer Financial Protection Act of 2010 (CFPA). The CFPA requires large financial institutions (those with more than $10 billion in assets) to respond to a customer’s request for account information in a clear and timely manner, ensuring that all information provided is accurate and complete. The CFPA additionally prohibits the imposition of unreasonable barriers to consumer information, including charging illegal “junk” fees. In the eyes of the CFPB, “junk” fees are concealed, excessive, or unnecessary charges imposed on a customer for access to basic information about their accounts.
In the opinion, the CFPB reiterated the obligations of financial institutions to provide easy access to such information without undue interference and outlined fees that the CFPB would likely view as “junk” fees:
- Fees for inquiries about account or loan balances;
- Fees for a check image or original account agreement; and
- Fees for time spent on gathering supporting documentation concerning an account.
The opinion was released simultaneously with a proposed rule issued by the Federal Trade Commission, which prohibits similar fees. The CFPB indicated that it intends to begin imposing penalties on financial institutions for violations of the CFPA in connection with the imposition of fees deemed to be in the “junk” category after February 1, 2024.
Practice Pointer: The opinion notes that not all fees where customers seek account information are prohibited by the CFPA. The opinion made clear that it would generally not be a violation of the CFPA for a financial institution to impose a fee where a customer repeatedly requests and receives the same account information. Nevertheless, financial institutions should examine existing fee practices and customer service models to ensure compliance with the CFPA and the CFPB’s latest guidance in this area.
For more information concerning this topic, please contact Christopher R. Rahl.
Contact Christopher R. Rahl | 410-576-4222
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Role of Immigration Status in Credit Decisions
On October 12, 2023, the Consumer Financial Protection Bureau (CFPB) and the Department of Justice (DOJ) issued a joint statement warning creditors that using immigration status improperly in credit decisions can violate the federal Equal Credit Opportunity Act (ECOA), and its implementing regulation, Regulation B. Although consideration of immigration status is expressly permitted under the ECOA, these considerations can still be discriminatory due to the wide overlap between immigration status and protected classes under the ECOA. Because of this overlap, giving too much weight to immigration status in credit decisions may raise questions about whether that status is being used as a pretext (or proxy) to discriminate against protected classes.
The joint statement narrows the scope of what is permitted under the ECOA and Regulation B so that a creditor’s use of immigration status (1) must be necessary to the creditor’s right to repayment or meeting the creditor’s applicable legal obligations; and (2) cannot be a pretext for discrimination on a protected class, such as race or national origin. The recent statement offers examples of conduct that could be prohibited, such as: a creditor’s blanket policy of rejecting applicants with a certain immigration status; and/or a creditor’s blanket policy requiring applicants of a specific citizenship status to submit additional documents not required of other applicants.
Practice Pointer: When considering immigration status, creditors should document credit files to support that their consideration of immigration status was necessary and pertinent to review of the creditor's rights and remedies for repayment or to fulfill the creditor's applicable legal obligations.
For questions about this topic, please contact Christopher R. Rahl.
Contact Christopher R. Rahl | 410-576-4222
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