Md. Holds Borrower Law Firm That Regularly Offered to Negotiate Loan Modifications Subject to Regulation Under Maryland Credit Services Business Act

The Court of Appeals of Maryland recently determined that a law firm engaged in the business of assisting homeowners to modify their mortgage loans constituted a “credit services business” under the Maryland Credit Services Business Act, Md. Code, Comm. Law (“CL”) § 14-1901 et seq. (“MCSBA”), and was subject to regulation and licensure.  The Court also determined that, because the law firm had engaged in the credit services business on a “regular and continuing basis,” it was not subject to the Act’s exemption for attorneys.

A copy of this opinion is available here.


Several homeowners facing foreclosure hired a Virginia law firm, which promised to help renegotiate their mortgage loans in exchange for payment.  After receiving a complaint from one such homeowner, the Maryland Commissioner of Financial Regulation (“Commissioner”) instituted administrative proceedings against Law Firm and its managing partner (collectively, “Law Firm”).  Following an evidentiary hearing, Commissioner found that Law Firm committed multiple violations of the MCSBA, which regulates “credit service businesses” purporting to assist consumers in obtaining credit.  Specifically, neither Law Firm nor any of its attorneys held a license under the MCSBA.  The Commissioner also found that Law Firm violated the MCSBA’s bonding and disclosure requirements.   After settlement efforts failed, the Commissioner entered a cease and desist order prohibiting law firm from engaging in any credit services business activities with Maryland residents, imposed a civil monetary penalty of $114,000 and, determining that its violations were willful, directed law firm and its principal to pay 57 Maryland consumers treble damages totaling $720,600.

Reversing the Commissioner’s order, both the trial court and the intermediate appellate court held that that Law Firm was not a “credit services business” under the MCSBA because its attempts to obtain loan modifications for its clients were “ancillary” to its provision of legal services.  The Commissioner thereafter obtained certiorari in the Court of Appeals.


The Court of Appeals agreed with the Commissioner that Law Firm constituted a “credit services business,” which is defined to include “any person [or entity] who, with respect to the extension of credit by others, sells, provides, or performs, or represents that such person can or will sell, provide or perform” any of certain enumerated services “in return for the payment of money or other valuable consideration.”  Md. Code, CL § 14-1901(e)(1).  Such services include “obtaining an extension of credit for a consumer,” or providing advice or assistance to a consumer in connection with obtaining an extension of credit.

Notably, the Court determined that, in undertaking to renegotiate the terms of homeowners’ mortgage loans in exchange for payment, Law Firm was offering to assist the homeowners in “obtaining an extension of credit,” thus falling within the MCSBA’s definition of a “credit services business.”  Op. at 15-16.  The Court also examined the MCSBA’s legislative history and concluded that the statute was not limited to regulating only “ordinary credit repair services” or payday lenders.  Op. at 18.  “Rather, it is intended to provide broad protection to consumers of credit services.”  Op. at 18.   Moreover, the Act’s exemption for “mortgage assistance relief providers” who were separately regulated confirmed that “the General Assembly believed that those who offer to obtain loan modifications for homeowners would be otherwise covered by the MCSBA.”  Op. at 19.

The Court then evaluated whether Law Firm met its burden to show that its activities were exempt from regulation under a statutory provision exempting attorneys.  See Md. Code, CL § 14-1901(e)(3)(vi).  For the “attorney exemption” to apply, three requirements must be met:  “(1) the individual must be admitted to the Bar of the Court of Appeals of Maryland, (2) the individual must render the services within the course and scope of practice by the individual as a lawyer, and (3) the individual must not engage in the credit services business ‘on a regular and continuing basis.’”  Op. at 22.  The Court determined that Law Firm could not satisfy the third prong because, over the relevant time period, Law Firm entered into 57 agreements with Maryland homeowners, and consulted with hundreds of others.  Further, such agreements constituted a “very significant part of the firm’s business” and “accounted for most of the work of its Maryland-licensed attorney . . . .”  Op. at 23. 

The Court noted that “[a] Maryland attorney who counsels an individual client facing foreclosure and attempts to negotiate a mortgage loan modification would . . . ordinarily be exempt from the MCSBA.”  Op. at 23.  However, “there may be cases where there is a significant question at what point an attorney who frequently provides such services has crossed the line into providing ‘regular and continuing’ credit services.  That, however, is not this case.”  Op. at 23.  To that end, the Court observed that “[t]he consultations and agreements with Maryland homeowners seeking loan modifications were not only a very significant part of the firm’s business during the month’s in question, but also accounted for most of the work of its Maryland-licensed attorney by the time he left the firm.”  Op. at 23.  Consequently, the Court determined that there was substantial evidence to support the Commissioner’s finding that the law firm engaged in a credit services business on a regular basis.  Op. at 23.

Accordingly, the Court held that Law Firm was subject to the MCSBA as a “credit services business,” but remanded the case to the trial court to determine whether Law Firm’s violations were willful.  Op. at 28.