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Financial Services Law Insights and Observations

District Court: Maryland escrow law does not confer private right of action

Courts State Issues Escrow Mortgages Class Action Dodd-Frank National Bank Act Interest Rate Consumer Finance

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On September 22, the U.S. District Court for the District of Maryland granted a national bank’s motion for summary judgment in an action claiming the bank allegedly failed to pay interest on mortgage escrow accounts. The plaintiff filed a putative class action asserting various claims including for violation of Section 12-109 of the Maryland Consumer Protection Act (MCPA), which requires lenders to pay interest on funds maintained in escrow on behalf of borrowers. In response, the bank filed a motion to dismiss on the basis that the MCPA is preempted by the National Bank Act and by 2004 OCC preemption regulations. In 2020, the court denied the bank’s motion to dismiss after it determined, among other things, that under Dodd-Frank, national banks are required to pay interest on escrow accounts when mandated by applicable state or federal law. (Covered by InfoBytes here.) Citing previous decisions in similar escrow interest cases brought against the same bank in other states (covered by InfoBytes here and here), the court stated that Section 12-109 “does not prevent or significantly interfere with [the bank’s] exercise of its federal banking authority, because [Section] 12-109’s ‘interference’ is minimal, when compared with statutes that the Supreme Court has previously found were preempted.” The court further noted that state law—which “still allows [the bank] to require escrow accounts for its borrowers”—provides that the bank must pay a small amount of interest to borrowers if it chooses to maintain escrow accounts.

However, in its most recent ruling, the court held that the MCPA does not authorize the plaintiff to sue either. “[T]his court finds that § 12-109 does not confer a private right of action,” the court wrote, adding that the plaintiff’s breach of contract claim could not get around a notice-and-cure provision in her mortgage agreement that she had not complied with before suing. The plaintiff argued that these requirements did not apply because “her self-styled breach of contract claim is actually a statutory claim because the allegedly breached contractual provision is one which pledges general adherence to applicable law.” The court disagreed, stating that under the plaintiff’s theory “any claim for breach of contract, which also violated a federal or state law, would be vaulted to a privileged hybrid status. Such claims would enjoy an unlimited private right of action (regardless of whether the underlying statute created one) and. . .would be unbounded by any of the provisions or conditions precedent detailed in the contract itself.” The court also ruled that the plaintiff’s escrow statements, which “correctly reflected that her account was not accruing interest,” are themselves “not rendered deceptive by the mere fact that Plaintiff believes such interest is owed.”

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