The Maryland Court of Appeals, the state’s highest court, recently held that under Maryland Commercial Law Article § 12-1018(b), a credit grantor that knowingly violates the Maryland Credit Grantor Closed End Credit Provisions is required to forfeit treble the amount of interest, fees, and charges collected in violation of the subtitle.
A copy of the opinion in Lyles v. Santander Consumer USA Inc. is available at: Link to Opinion.
The matter arose out of a borrower’s (“Borrower”) purchase of a motor vehicle which he financed by closed end credit pursuant to an agreement governed by the Credit Grantor Closed End Credit Provisions (“CLEC”). The Retail Installment Sales Contract (“RISC”) entered into by Borrower for the purchase of his vehicle affirmatively invoked CLEC as the governing law.
Borrower instituted a class action suit against the auto finance company (“Lender”) alleging that Lender violated CLEC by charging convenience fees for payments made over the phone, through an automated system or on the internet. Lender removed the matter to federal court, which requires an amount in controversy exceeding $5 million. Borrower filed a motion to remand back to state court. As the federal district court’s subject matter jurisdiction was dependent on the minimal amount in controversy, the federal trial court certified a question of law to the Maryland Court of Appeals to determine the appropriate interpretation of CL § 12-1018(b).
The certified question was:
“If a credit grantor is found to have knowingly violated Credit Grantor Closed End Credit Provisions (“CLEC”), Maryland Code Annotated, Commercial Law §§ 12-1001, et seq., does [CL] § 12-1018(b) require the credit grantor to return three times: (1) all amounts collected by the credit grantor in excess of the principal amount financed; (2) only those amounts collected that the borrower contends violate CLEC (in this case, the convenience fees); or (3) some other amount?”
In answering the question, the Maryland Court of Appeals relied upon the caselaw regarding the CLEC, a plain language analysis of CL § 12-1018(b) and a review of the legislative history.
The Court noted that CLEC was enacted by the Maryland General Assembly as part of the Credit Deregulation Act of 1983 to enable Maryland banks “to compete more effectively with the banks in nearby states.” Patton v. Wells Fargo Fin. Md., Inc., 437 Md. 83, 88-89 (2014). In addition to providing consumer protection to borrowers in transactions involving closed end credit, CLEC also establishes parameters and regulations with which credit grantors must comply. Patton, 437 Md. at 89. In addition, CLEC provides remedies to the borrower if the grantor fails to comply with its provisions. Id. at 90. However, it is only when a creditor grantor affirmatively elects CLEC to apply to a closed end credit loan that the protections, parameters, regulations and remedies apply. See CL § 12-1013, CL § 12-1013.1.
Borrower argued that when a credit grantor violates CLEC, then CL § 12-1018(b) requires the grantor to forfeit three times the amount of unauthorized charges. Borrower additionally emphasized the legislative history indicating that the penalty provisions of CLEC are identical to those of the Maryland Secondary Mortgage Loan Law (Cl § 12-413) and thus, the case law and regulatory decisions interpreting CL § 12-413 provide the appropriate damages calculation under CL § 12-1018(b).
Lender argued that CL § 12-1018(b) would require a credit grantor to pay three times the amount collected in excess of the principal amount financed under the RISC. Lender further argued the opinion relied on by Borrower, Bolling v. Bay Country Consumer Finance, Inc., 251 Md. App. 575 (2021) was not properly before the court.
Maryland CL § 12-1018(a) provides “[e]xcept for a bona fide error of computation, if a creditor grantor violates any provision of this subtitle the creditor grantor may collect only the principal amount of the loan and may not collect any interest, costs, fees, or other charges with respect to the loan.” CL § 12-1018(a)(2). In conducting its analysis, the Maryland Court of Appeals analyzed case law from various state and federal courts applying Maryland law.
The Maryland Court of Appeals noted that there is disagreement among the other courts as to when a borrower can bring a claim under CL § 12-1018(a)(2). However, it noted that the other courts recognize that “CLEC does not provide for any fixed statutory damages beyond the [borrower’s] actual loss[,]” and “that the penalty prescribed under CL § 12-1018(a)(2) confines the credit grantor to collection of the principal amount of the loan, thereby forfeiting any outstanding interest, charges, costs, and fees[.]” The Maryland Court of Appeals noted that the principle that CL § 12-1018(a)(2) limited a credit grantor’s collection to the principal loan amount informed its understanding of CL § 12-1018(b).
The Maryland Court of Appeals next turned to interpretation of CL § 12-1018(b), which states in relevant part: “In addition, a credit grantor who knowingly violates any provision of this subtitle shall forfeit to the borrower 3 times the amount of interest, fees, and charges collected in excess of that authorized by this subtitle.”
The Court found that the provision provides the penalty for knowing violations of CL § 12-1018(b) and that the words “in addition” signal that this penalty is additional to the penalty set forth in CL § 12-1018(a)(2).
The Maryland Court of Appeals focused on the phrase “in excess of that authorized by this subtitle.” The Court found this language identified the amount to be trebled as that which the credit grantor was not permitted to charge under CLEC. The Court further noted that if the intention of the Maryland General Assembly was to require the grantor to pay treble the amount collected in excess of the principal, the provision would have been written to read as such. See Peterson v. State, 467 Md. 713, 727 (2020).
Finally, as the Maryland General Assembly only expressly authorized forfeiture of “the amount of interest, fees, and charges” that are “collected in excess of that authorized by the subtitle” the Court found that the amount to be trebled under CL § 12-1018(b) are the amounts collected which are not authorized under CLEC.
Finally, the Maryland Court of Appeals analyzed the legislative history, noting that the history revealed that the language originated in CL § 12-413, the Maryland Secondary Mortgage Loan Law. Although the original bill did not include the penalty provisions of CL § 12-1018(a) and (b), amendments were ultimately added that were “identical as to penalty, as to those now existing under the Maryland Secondary Mortgage Loan Law.” See Senate Bill 594, Analysis of Proposed Amendments (March 28, 1983) in legislative bill file for Senate Bill 591.
The Court further noted that the only amendment to CL § 12-1018(b) since its enactment in 1983 was to include the word “fees” as an impermissible collection, and there was nothing in the legislative history to suggest the legislature intended CL § 12-1018(b) to not be interpreted consistently with its plain meaning. As such, the Court found that assuming the convenience fees charged by Lender in violation of CLEC were knowingly collected, the correct damages calculation under CL § 12-1018(b) was treble the amount of the convenience fees collected.
Therefore, the Maryland Court of Appeals held that “CL § 12-1018(b) requires a credit grantor that is found to have knowingly violated CLEC to forfeit three times the amount of interest, fees, and charges collected in violation of the subtitle.”