Montgomery County Council’s Bill 36-04

As was reported in last month’s Maryland Mortgage Press, the Montgomery County Council passed Bill 36-04 which amends the County’s Anti-Discrimination Law to cure what it perceives to be rampant predatory lending in the County. The legislation was sponsored primarily by Councilman Tom Perez, an unannounced candidate for Attorney General of Maryland. 

Though Maryland law expressly preempts any local attempt to enact such measures, Montgomery County hope its new laws will circumvent state laws by viewing it as anti-discrimination legislation rather than financial/mortgage law. At this time there is no information available as to whether either the State or the Office of the Attorney General is going to take a position on this legislation; although is anticipated that an Opinion of the Attorney General is going to be requested by an elected official. These “Opinions” are not binding on the courts, nor do they serve as legal precedent. An Opinion finding that this law is preempted by existing State law, however, would be helpful in any legal challenge. Likewise, it is believed that private litigation is being drafted to challenge this law in the judicial system. There are certain specific provisions of the new law that should be outlined since they impact all facets of the lending business whether one is acting as a broker or a lender. The Council begins by broadening the protected classes of people beyond the recognized State and Federal categories. It is a violation of the Act if the lender or broker considers any of the following in the making or denial of a loan: race, color, religion, ancestry, natural origin, sex, marital status, disability, and presence of children in the household, family responsibilities, source of income, sexual orientation and age. 

 The next section of specific concern to all licensees is the prohibited actions under the new law. The main thrust is to prohibit “steering” which is broadly defined as restricting or attempting to restrict a person’s choices because of factors other than a person’s income or credit level in connection with a seeking, negotiating, buying or renting a dwelling - including seeking a mortgage for a dwelling. The definition goes on to specifically prohibit discouraging a person from a mortgage loan with more favorable terms if that person may qualify for that particular mortgage loan. The next paragraph of the legislation goes further in prohibiting directing a person away from a mortgage loan product, program or service with more favorable terms if the person may qualify for it. In order to capture any possible mortgage where the lowest possible terms were not offered to the buyer, the law prohibits even the offering of a less favorable mortgage loan terms under which the borrower would qualify. 

Substantively, the law goes on to specifically prohibit “excessive upfront points, excessive fees, or excessive prepayment penalties”. Please note that these terms are undefined in the new law. The legislation does not offer any guidelines or legislative history that would help offer guidance as to what is excessive. For example, the law does not tell the industry whether the number of points or the fees charged may vary from transaction to transaction or if there is a fixed threshold over which a fee is considered excessive. This is one of a myriad or questions posed by a reading of the new law. 

To make matters potentially more difficult for brokers and lenders, the law directs Montgomery County’s Office of Consumer Protection to assist anyone who thinks he or she may have been discriminated against. The Office is directed to investigate each case and aid the borrower in his or her quest. 

In order to enforce these rather vague and uncertain prohibitions, the new law allows for unprecedented damages awards including attorney fees, up to $500,000 for embarrassment and humiliation (again undefined), return of all funds paid, and “any other relief that furthers the purposes” of the law. The most difficult aspect of these damage awards is the uncertainty that may be created in the mortgage market both short and long term.