Md. lawmakers fail to act on bill sought by lenders Industry worried about court ruling

November 20, 1992|By David Conn | David Conn,Staff Writer

The Maryland General Assembly went home yesterday after finishing its budget chores, but left unfinished the business of Maryland's lending industries.

Legislative leaders declined to address a bill that would rectify, at least temporarily, what many banks, thrifts, auto lenders, finance companies and retailers fear could evolve into a minor crisis at the most important time of the year, the Thanksgiving-Christmas retail spending season.

The bill would have postponed for a year the impact of a Maryland Court of Appeals ruling issued last month. Some creditors believe the ruling retroactively imposes consumer protection requirements that could threaten the soundness of millions of dollars of existing loans, lead to countless lawsuits and possibly curtail the willingness of some lenders to make new loans.

"We are very disappointed the issue was not taken up in the special session," said John Bowers, director of the Maryland Bankers Association, "but we recognize the nature of politics."

The nature of politics yesterday was to complete a rancorous fight over Gov. William Donald Schaefer's budget-cutting bill and go home. "I've talked to a ton of attorneys, and the majority of them said it's not a major enough problem to address" before the regular legislative session starts in January, said House Speaker R. Clayton Mitchell Jr., D-Kent.

"There's too many things we could do wrong in such a short time," he explained.

The chairman of the House Economic Matters Committee said that he plans to hold a hearing on the issue Dec. 2. "If it is indeed a serious issue to be resolved, we might want to look at some kind of emergency legislation [in January], and I want to be prepared for that," said Del. Casper R. Taylor Jr., D-Allegany.

Consumer advocates expressed relief that the General Assembly refused to pass in haste a bill they saw as overreaching by lenders.

In its attempt to remove some consumer protections that weren't even mentioned in the court ruling, "the bill was definitely over-broad," said Cheryl Hystad, managing attorney of the consumer law unit of Legal Aid Bureau Inc., a non-profit organization that filed a "friend of the court" brief in the controversial automobile repossession case, Biggus v. Ford Motor Credit Co.

The lenders' fears stem from the Oct. 16 court ruling in which the court, in language not directly related to repossession issues, suggested credit grantors might have to obey a myriad of lending requirements contained in sections of a law the lenders believed were invalidated years ago. The court indicated those requirements could apply not only to future loans but to existing loans as well.

That, in turn, could lead consumers to file lawsuits demanding some of their money back, lenders fear, and could cause banking regulators to question the value of some loans on the books of Maryland's financial institutions.

The Biggus case involved a statute the legislature passed in 1983 to relieve the burden of some consumer protection regulations on financial institutions that were threatening to leave the state. The court last month ruled that if a requirement appeared in the old law, but no mention was made of it in the 1983 law, a lender had to comply with it nonetheless.

The old law, for instance, required creditors to pay borrowers the interest earned on escrow accounts held in the borrower's name. It prohibited lenders from writing contracts that allowed them to repossess the purchased product if the lender became "insecure" about the borrower's ability to repay. And it prevented lenders from forcing consumers to waive their rights to certain legal remedies.

None of those provisions are mentioned in the 1983 law, so an existing loan that failed to comply with them might be declared invalid.

"Our concern was it's going to create some uncertainty in the credit markets, and it comes at a time when we least need it," said Thomas Saquella, director of the Maryland Retail Merchants Association.

"We're looking at what we think's going to be a pretty good Christmas, first time in three years, and we certainly didn't need this kind of cloud over us," he said, adding that he couldn't say whether any retailer would cut off credit to a buyer.

Ms. Hystad, of Legal Aid, said the lending industry had no reason to be surprised by the court ruling. The same logic the court used was expressed in an attorney general's opinion two years ago, she said, in language the court of Appeals itself cited in Biggus.

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