A Maryland Appeals Court has issued a ruling in a case being heard in federal court, determining that law firms engaged in debt collection activities on behalf of a client are not subject to the Maryland Consumer Loan Law.
A copy of the ruling, in the case of Nagle & Zaller v. Delegall can be accessed by clicking here.
The law firm works on behalf of homeowners’ associations, collecting unpaid assessments. The firm negotiates and drafts promissory notes that detail the terms of the payment arrangements for the delinquent assets. The promissory notes include confessed judgment clauses, and in the event an individual defaults on his or her obligation, a confessed judgment complaint is filed against the individual.
The defendant filed a lawsuit back in 2018 in state court, claiming the debt collection activities of the law firm violated state law in Maryland. The case was eventually removed to federal court, and claims the law firm and the homeowners’ associations are lenders as defined in the Maryland Consumer Loan Law but neither are licensed. This would make the promissory notes unenforceable.
The law firm filed a motion to dismiss, but because there are no decisions referencing whether a law firm undertaking debt collection activities is required to be licensed under the MCLL, the judge asked the state appeals court for an answer.
For the appeals court, the issue is whether the promissory notes meet the definition of loans under the MCLL or not. The statute says it applies to anyone engaged “in the business of making loans” but does not define what that means nor what it means to make a loan. Ultimately, the law was enacted to regulate loan brokers and those engaged in the business of consumer lending, the Appeals Court noted.
“Reading the plain language of the statute — which regulates persons ‘in the business of making loans’ — in the context of the legislative history and the purpose of the statute, leads us to the clear conclusion that the General Assembly intended the MCLL to regulate businesses engaged in consumer lending, and did not intend for it to apply to all lawyers or law firms that draft loan documents or engage in collection activity on behalf of clients,” the Appeals Court wrote. “Nor is there any evidence that the Legislature intended to require that HOAs or condominium regimes be licensed in order to exercise their statutory right to collect delinquent assessments or charges, including entering into payment plans for the repayment of past-due assessments.”