How the Maryland Consumer Protection Act Protects Tenants

The Maryland Consumer Protection Act (MCPA) protects “consumers” from several wrongful actions by “merchants,” including wrongful actions regarding “consumer realty.”  The term consumer includes lessees (tenants are lessees) and the term merchants includes landlords.  Consumer realty means real property that is primarily used for personal, household, family or agricultural purposes.

The MCPA states that a merchant may not engage in any “unfair or deceptive trade practice” when renting, selling, or offering to rent or sell consumer realty.  These practices are illegal whether or not the tenant is actually deceived or tricked in any way.

An unfair or deceptive trade practice includes the following: 

• A false or misleading oral or written statement, visual description, or other             representation that has the capacity, tendency or effect of deceiving or misleading       
• Representation that realty has a sponsorship, characteristic, or use that it does not have, or that it is of a particular standard, quality, or style that it is
• Failure to state a material fact if the failure deceives or tends to
• Use of a clause in a contract, including a lease, which waives the consumer's right to use a legal defense.

Examples are failure to disclose health and safety issues such as defective door locks and the lack of fire exits.

However, the MCPA’s protections are limited to only a violation that occurs during the establishment of the landlord/tenant relationship.  Richwind Joint Venture v. Brunson, 645 A.2d 1147, 335 Md. 661 (1994).   The court stated that at the time the lease is entered into, the landlord has superior knowledge.  However, the tenant has superior knowledge while in exclusive possession of the leased premises. 

A tenant (consumer) who believes to be a victim of an unfair or deceptive trade practice may file a complaint to get payment for losses resulting from the unfair or deceptive practice. In addition to this payment, a judge may award the tenant attorney’s fees if the tenant’s lawsuit is successful.

Usurious Contracts: Identifying Illegal Interest Rates

The general rule in Maryland is that lenders may not charge an effective rate of simple interest greater than six percent annually.  An effective rate of simple interest is a flat interest rate, not a compound interest.  However, because lenders can require borrowers to pay interest as interest accrues, calculating the amount of interest charged is a little more complicated than just multiplying the principal by the rate of interest.  Despite the general rule, there are many circumstances when lenders can and do charge more six percent. 

For example, a lender may charge up to 24 percent interest if there is a written loan and the collateral is not a savings account, the loan is unsecured, or the loan is not secured by real property.  (If the loan was made before July 1, 1982, the interest rate is limited to 18 percent.)  However, if a lender is going to charge a rate of interest of 24 percent, the loan needs to meet a few requirements. These requirements can be found in Md. Commercial Law Code Ann. §12-103.  Typically, the interest rate on car loans and on such things as furniture can reach as high as 24 percent.

Although a loan on its face value may claim to charge up to 24 percent, lenders sometimes illegally charge more by sneaking in hidden fees.  A loan that charges more than the legal rate of interest is called usurious and is prohibited by law.  In many circumstances, the law considers fees, such as processing fees and financing fees, to be interest.  Below are some circumstances that are considered usurious and, therefore, illegal.

• If a lender is charged compound interest and the sum of the interest exceeds a flat interest rate of 24 percent, that contract is usurious and prohibited by law. 

• If there is an interest rate approaching 24 percent and the lender charges a processing fee or financing fee, the contract could be usurious.

If the requirements found in Md. Commercial Law Code Ann. §12-103 are not met, lenders can only charge 8 percent on the on the unpaid principal balance of a loan if there is a written agreement signed by the borrower which sets forth the stated rate of interest. However, if the loan is a written agreement secured by a certificate of deposit held by the borrower, the lender cannot charge an interest rate in excess of 2 percent of the interest rate payable on the certificate of deposit.

Generally, if the loan is secured by a mortgage or first deed of trust on any interest in residential real property, a lender can charge any interest rate, providing certain requirements are met.  Once again, these requirements can be found in Md. Commercial Law Code Ann. §12-103.  In addition, any interest rate can be charged on commercial loans in excess of $ 15,000 not secured by residential real property and on commercial loans in excess of $ 75,000 secured by residential real property.

Repossession: Consumer Rights and Lender Obligations

Maryland law provides a process by which a lender may repossess goods securing a loan.  For example, assume a person obtains a loan to person to buy a vehicle and that loan is secured by the purchased vehicle.  If that purchaser does not live up to the repayment provisions of that loan, the lender may repossess that vehicle.  The legal term for not repaying the loan is “default.”  Generally, a borrower is in default if that borrower fails to make a payment due under the loan’s terms.   

At least 10 days before repossessing the goods that secured the loan (in this case the vehicle) on which the borrower defaulted, the lender MAY, in writing, inform the borrower of his intent to repossess the goods.  If the lender does not send one of these discretionary notices, they cannot charge the borrower any repossession expenses.  Regardless of whether the lender informs the borrower of their intent to repossess the goods, within 5 days after a lender repossess goods, that lender must send or deliver to the borrower a notice.  The notice must briefly state the right of the borrower to retake possession of the goods and the amount payable for them. (Retaking possession of the goods is legally referred to as redeeming the goods).  The notice must also state the right of the borrower as to a resale and the borrower’s liability for any deficiency.  (Resale is the sale of the borrowed goods by the lender.  The proceeds of the sale are used to pay the deficiency.)  Further, the lender must inform the borrower where the goods are stored and the address where any payment is to be made.  The lender cannot sell or dispose of the goods for at least 15 days after such written notice.

During this 15 day period, the borrower may redeem and take possession of the goods and resume performance of the loan agreement.  Basically, to redeem the goods, the borrower must pay any amounts due under the loan agreement.  Further, if the lender provided advance notice, the borrower must pay the expenses of retaking and storing the goods.

If the borrower does not redeem the goods, the lender may sell the goods at a private or public sale.  At least 10 days before the sale, the lender must notify the borrower in writing of the time and place of sale.  If the goods are sold at a private sale, the lender must, in writing, provide the borrower a full accounting of the sale.  The Commissioner of Financial Regulation may determine that the sale was not done in a commercially reasonable manner and enter an order disallowing any claim for a deficiency balance.  If the goods are sold at a public sale, the lender must provide the borrower a written statement showing the distribution of the sale proceeds.

Finally, the lender is not required to sell the goods.  Rather the lender may keep the repossessed goods.  If the lender keeps the goods, the borrower is discharged from all obligations.

If the lender does not follow these requirements, they are prevented from collecting a deficiency judgment from the borrower.