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  • Maryland court of appeals: state consumer protection act covers HOA collections

    Courts

    On January 27, the Court of Appeals of Maryland affirmed the dismissal of a homeowners association’s (HOA) confessed judgment complaint against a consumer, and stated that the HOA could not file an amended complaint. According to the opinion, the consumer owned a home that is part of an HOA, which makes annual assessments to cover the costs of general upkeep of the common areas. When she fell behind in paying her HOA assessments, the HOA drafted and the consumer signed, a promissory note (note) that contained a confessed judgment clause. The consumer defaulted on the note and the HOA filed a complaint for judgment by confession along with the note and an affidavit that stated the note did not involve a consumer transaction. The district court entered judgment for the HOA. The consumer filed a motion to vacate the judgment, claiming that the note arose from a consumer transaction, and the confessed judgment clause was prohibited under the Maryland Consumer Protection Act (MCPA). The district court agreed that the note evidenced a consumer transaction and vacated the confessed judgment and set the matter for trial. After the consumer received a notice regarding the trial on the issue, she filed a motion to dismiss, which was denied, and she appealed to the circuit court. The circuit court held that the confessed judgment was prohibited and that the complaint was required to be dismissed. The HOA filed a petition for writ of certiorari, which the Court of Appeals granted.

    Upon review, the Court of Appeals found that under the MCPA (i) the HOA assessments are consumer debt; (ii) the HOA’s note was an extension of consumer credit; and (iii) confessed judgment clauses in contracts involving consumer transactions are prohibited. Further, the Court of Appeals determined that the HOA could not “circumvent the protections afforded to a debtor under the [M]CPA by inserting language into a confessed judgment clause which purports to preserve a debtor’s legal defenses.” The Court of Appeals also rejected the consumer’s assertion that the note was void as a result of the confessed judgment clause, finding instead that though the HOA should not be allowed to file an amended complaint in the current action, the HOA could file a separate action for breach of contract if the unlawful clause was severed from the note. Accordingly, the Court of Appeals stated that the current action should be dismissed without prejudice.

    Courts State Issues State Regulation Consumer Protection Debt Collection HOA Appellate Consumer Lending | Consumer Finance Consumer Finance

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  • Point-of-sale finance company enters into consent order with California DBO

    State Issues

    On January 16, the California Department of Business Oversight (DBO) and a point-of-sale finance company entered into a consent order to resolve the DBO’s allegations that the company had made loans without a license to California consumers. According to the order, the company applied for a license under the California Financing Law (CFL) in September 2019. The DBO initially denied the company’s license application on December 30, 2019 (previously covered by InfoBytes here) and issued a statement of issues explaining its reasoning. The DBO found that the company’s transactions were disguised loans subject to the CFL. The company had argued that its transactions were credit sales not subject to the CFL. Ultimately, the company agreed to resolve the matter and pay $282,000 in refunds to consumers and a $28,200 fine for unlicensed lending. Additionally, the company agreed to “cease providing loans or extensions of credit to California residents by means of purchasing credit sales contracts from merchants” and “only provide loans or extensions of credit to California residents under the authority of a license issued by the Commissioner under the CFL.” Simultaneous with the announcement of the consent order, the DBO issued the company a license.

    State Issues DBO Consumer Finance Consumer Lending | Consumer Finance Licensing Consent Order Fintech

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  • Agencies release 2018 CRA data

    Federal Issues

    On December 16, the three federal banking agency members of the Federal Financial Institutions Examination Council (FFIEC) with Community Reinvestment Act (CRA) responsibility—the Federal Reserve Board, the FDIC, and the OCC—announced the release of the 2018 small business, small farm, and community development CRA data. The analysis contains information from 700 lenders about originations and purchases of small loans (loans with original amounts of $1 million or less) in 2018, a 2.2 percent decrease from the 718 lenders that reported data in 2017. According to the analysis, the total number of originated loans increased by approximately 8 percent from 2017, with the dollar amount of originations increasing by roughly 5 percent; however, the analysis notes that the majority of this growth is attributable to one bank’s increase in originations. The analysis further notes that 615 banks reported community development lending activity totaling nearly $103 billion in 2018, an increase from $96 billion in 2017.

    Federal Issues CRA FFIEC OCC FDIC Federal Reserve Small Business Consumer Lending | Consumer Finance

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