Opinion by Diaz, Circuit Judge.
Holding: The Maryland Credit Grantor Closed End Provisions (CLEC) are not violated when a creditor discovers and cures an interest rate on debt that is being charged in excess of the legal limit within sixty days of discovery.
Facts: Appellant was a party to a retail installment sales contract with a car dealership to finance purchase of a used car. The dealership assigned the contract to creditor. The contract, subject to CLEC, charged an interest rate of 26.99% in excess of the allowable rate of 24%. In August of 2010, creditor discovered the discrepancy and sent appellant a letter noting that the interest rate listed in his contract was not correct. It then credited his account $845. It also noted that an interest rate of 23.99% until the contract terms were due to completed.
Appellant defaulted and creditor took steps to collect on the account. Appellant alleged that creditor made false statements in their attempts to collect on his account which included: 1) a claim that he would be reported to state authorities; 2) a replevin warrant had been prepared; and 3) his complaint in the case he filed against them in the lower court had been dismissed.
“If a creditor knowingly violates the CLEC, it shall forfeit to the borrower 3 times the amount of interest, fee’s and charges collected in excess of that authorized by CLEC.” Sec. 12-1018(b). CLEC includes two safe-harbor provisions. Section 12-1020 provides:
A credit grantor is not liable for any failure to comply with CLEC, if, within 60 days after discovering an error and prior to institution of an action under CLEC, or receipt of written notice from the borrower, the credit grantor notifies the borrower of the error and makes whatever adjustments are necessary to correct the error.
Appellant argued that creditor violated the CLEC by failing to expressly disclose in the contract an interest rate below the statutory maximum. He also argued that the “discovery rule” should apply to the section 12-1020 safe harbor, which would mean that creditor failed to cure an error within sixty days of discovery. Appellant asserted that creditor failed to properly notify him of the interest rate error and failed to make the adjustments to correct the error.
The Court rejected the argument that the actual interest rate of 24% had to be expressly disclosed in the contract. The only disclosure requirement in section 12-1003(a) is “one mandating that the interest rate charged be expressed as a simple interest rate.” The Court cited that appellant’s interpretation would “subject credit grantors to a rather meaningless technical requirement while doing little to help consumers.” The purpose of the statute is to prevent creditor grantors from charging usurious rates while protecting consumers by eliminating confusing interest rate computations in contracts.
Appellant’s argument regarding the discovery rule of CLEC was predicated on an interpretation of the rule that would have required creditor to discovery the interest rate error at the time it assumed the contract. The Court rejected this argument stating that creditor took the proper steps to correct the error, when it actually discovered it. It stated that the goal of the discovery rule is to encourage creditors to “cure any CLEC violation upon learning of it and notify the debtor, who is otherwise unaware of any problem with the loan.”
The Court concluded that creditor complied with section 12-1020’s notice requirement in that it notified appellant in the cure letter by identifying the of the substance of the mistake at issue in the case, charging too much interest.
Appellant believed that he was entitled to a refund of all interest collected in excess of 6%, under Maryland usury law. The Court deemed this argument moot because it raised too late but also noted that the default rate of 6% is only applied in the absence of statute providing otherwise. Here, the CLEC governs and simply required creditor to make a timely refund of the interest collected above CLEC’s statutory maximum. The summary judgment on the breach of contract claim was upheld because “liability under CLEC begets a breach of the contract, and a defense under CLEC precludes contract liability.”
The Court however did determine that a reasonable jury could find creditor’s collection activities to be in violation of the Maryland Consumer Debt Collection Act (MCDCA). Creditor was alleged to have told appellant that it had taken legal action against him on three separate occasions. The Court reversed the lower court’s order granting summary judgment to creditor on appellant’s MCDCA claim.
The full opinion is available in PDF.