Consumer Protection Bills Under Consideration by Maryland’s General Assembly

Published on Mar 14, 2013 at 2:17 pm in General Blogs.

Additional disclosure requirements for debt collectors, expanding the definition of consumer under the Maryland Consumer Protection Act and second mortgage loans maintaining a subordinate position without the need to seek the permission of the loan’s holder are some of the consumer protection bills being considered by Maryland state lawmakers.

Senate Bill 432 requires debt collectors to make the following written disclosures in any communication with a debtor relating to an alleged debt: (1) the total amount of the debt; (2) the portion of the debt that is principal, as defined by the bill; (3) the portion of the debt that is interest; and (4) any fees that have been added to the debt total. This is the first time that this bill has been introduced. There is a companion bill in the House — HB 1157.

The Maryland Consumer Debt Collection Act (MCDCA) contains many prohibitions against actions and disclosures by debt collection agencies. Debt collectors that violate the MCDCA can be liable for any damages caused by violations, including damages for emotional distress or mental anguish suffered with or without physical injury.

Under Senate Bill 465, a second mortgage loan would retain its subordinate position without the need for an agreement with the lender of the second mortgage if the first mortgage loan is refinanced. The bill also applies to secondary liens held by a credit grantor. The bill does not apply to first mortgage loans recorded before October 1, 2013. The companion bill is HB 522. This is the first time this bill has been introduced.

In general, an earlier recorded mortgage recorded is granted priority over subsequent mortgages, which become junior in status. Once priority is determined, it can only be altered by a subordination agreement. Because a refinanced mortgage is a new mortgage, when a first mortgage is refinanced, the holder of an existing junior mortgage is asked to agree to subordinate so that the first loan holder preserves priority. However, the holder of a junior mortgage can refuse to sign the subordination agreement and, thus, block the homeowner’s ability to refinance the first mortgage. Even if lenders sign a subordination agreement, it can take more than a month to approve a request and refinancing homeowners can be required to pay fees to process a subordination request and to lock in refinanced interest rates, according to the fiscal note filed with the bill.

Maryland case law has established a legal principle that eliminates the need for a subordination agreement in specified situations, according to the fiscal note. This principle, known as equitable subrogation, holds that a refinanced mortgage inherits the priority of the mortgage it replaces. This rule applies only to situations in which the subrogation does not disadvantage the holder of the junior mortgage. The holder of the junior mortgage is disadvantaged if the refinanced mortgage has a higher principal amount or interest rate or a longer time to maturity than the extinguished mortgage. Equitable subrogation removes the need for a subordination agreement and, therefore, the ability of the holder of the junior mortgage to block the refinancing. This doctrine applies in Maryland as long as the refinancing lender had no actual knowledge of the junior loan.

Senate Bill 859 expands the Maryland Personal Information Protection Act (MPIPA) to impose duties on a business to protect an individual’s private information, including the implementation of security procedures and practices. The bill also alters the standard to be evaluated when determining whether a business must take specified actions to protect an individual’s private information. Violation of the bill is an unfair or deceptive trade practice under the Maryland Consumer Protection Act (MCPA), subject to MCPA’s civil and criminal penalty provisions. The companion bill is HB 960. This is the first time that this bill has been introduced.

House Bill 126 would expand the scope of the Maryland Consumer Protection Act (MCPA) to encompass an act or omission that relates to the purchase, rental, or lease by a fraternal, religious, civic, patriotic, educational or charitable organization of goods or services for the benefit of the members of the organization. The bill also increases the maximum fine from $1,000 to $3,000 and the maximum imprisonment term from one to three years for criminal penalties that may be imposed.

According to the fiscal note associated with the bill, the District of Columbia filed a lawsuit in 2009 against five companies for fraudulently inducing 30 area churches to accept computer kiosks on the representation that the kiosks were free of charge. The churches were told that the computer kiosks would be placed in the churches at no cost, would facilitate communication among congregation members, and could be used to post announcements, employment opportunities, etc. The churches were also told that the kiosks would generate revenue because sponsors would pay to advertise on them. However, according to the allegations made in the lawsuit, instead of receiving free computer kiosks, the churches were induced to sign leases worth tens of thousands of dollars for faulty equipment. In 2010, one of the companies involved in the lawsuit settled and agreed to stop collecting lease payments.

A similar bill, SB 726 of 2012, was amended in the Senate but received an unfavorable report from the House Economic Matters Committee. There is no companion bill.

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