August 30, 2018

Maryland Expands Its Consumer Financial Protection and Enforcement with New Law

3 min

On May 15, 2018, Maryland enacted the Financial Consumer Protection Act of 2018 (FCPA), which expands safeguards to protect consumers and augments the state's consumer finance enforcement mechanisms. The law becomes effective on October 1, 2018, and is set to change Maryland law in the following various ways.

Expanded Definition of "Unfair and Deceptive Trade Practice"

Akin to the federal Dodd-Frank Act, Maryland's FCPA expands the definition of "unfair or deceptive trade practice" under the Maryland Consumer Protection Act to also include "abusive" practices and violations of the federal Military Lending Act and Servicemembers Civil Relief Act.

Increased Civil Penalties

The FCPA increases civil penalties to $10,000 for initial violations, and $25,000 for subsequent violations.

Funding for Enforcement

Beginning in January 2020, the governor is required to appropriate at least $700,000 of the state's budget for the Office of the Attorney General to support its consumer protection enforcement initiatives. In addition, at least another $300,000 is to be appropriated to the Office of the Commissioner of Financial Regulation (OCFR) for enforcement of financial consumer protection laws. Both departments are limited to using these funds to hire new employees and conduct investigations of alleged violations of consumer protection laws.

Unlicensed Debt Collection Activities

The FCPA prohibits debt collectors from engaging in unlicensed debt collection activity in violation of the Maryland Collection Agency Licensing Act.

Appointment of Student Loan Ombudsman

The FCPA requires the OCFR to designate an individual to act as the Student Loan Ombudsman. The Student Loan Ombudsman shall, inter alia, (1) serve as a liaison between student loan borrowers and student loan servicers; (2) receive and review any and all complaints regarding student education loan servicing; (3) attempt to resolve said complaints; (4) refer any matter, if necessary, to the Attorney General for civil enforcement or criminal prosecution; and (5) disseminate information about student education loans and servicing. The Student Loan Ombudsman will also monitor and analyze complaint data to track trends; maintain names of companies that have been repeatedly cited for abusive, unfair, deceptive, or fraudulent practices; and make recommendations to the Commissioner regarding regulatory tactics that may resolve student loan borrower problems or diminish bad loan servicing practices. This individual will also present his or her findings to the General Assembly on January 1 of each year.

It is worth noting the federal backdrop against which this change to Maryland law is occurring. On May 9, 2018, the Bureau of Consumer Financial Protection announced the move of its student loan division, which had historically played an investigation and enforcement role, into the Bureau's consumer information division. And on August 27, 2018, the Bureau's Student Loan Ombudsman Seth Frotman tendered a resignation letter that was very critical of the Bureau's current efforts to protect consumers.

Researching Fintech Regulation and Cryptocurrencies

The OCFR shall also conduct a study to determine whether its department has the statutory authority to regulate Fintech firms. This study is to focus on identifying any gaps in the regulation of Fintech firms or loopholes that leave certain types of companies unregulated by state law. Like the Student Loan Ombudsman, the Commissioner is to report findings and any recommendations he or she has to the General Assembly, including legislative proposals, which may plug some of those glaring holes.

The Maryland Financial Consumer Protection Commission (MFCPC) was also tasked with researching its own laundry list of topics, including cryptocurrencies and initial coin offerings, the Bureau of Consumer Financial Protection's arbitration rule and other states' equivalents, and the possible removal of retailers of manufactured homes from the definition of "mortgage originators." Like the other sections of the FCPA, the MFCPC must make its recommendations for legislative changes to the General Assembly, which may ultimately result in more or less state regulation of these industries.