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Consumer Protection – Finance Company Cured Interest Error

Askew v. HRFC LLC (Lawyers Weekly No. 001-008-16, 23 pp.) (Diaz, J.) No. 14-1384, Jan. 11, 2015; USDC at Baltimore, Md. (Bennett, J.) 4th Cir.

Holding: Steps taken by defendant finance company after it discovered it was charging a used car buyer 26.99 percent in interest, including its letter of notice to the buyer, satisfied requirements under a Maryland consumer protection statute, but the district court erred in granting summary judgment for defendant on the buyer’s suit challenging defendant’s collections practices.

This case arises out of a 2008 retail installment sales contract between Dante Askew and a car dealership financing the purchase of a used car. The dealership subsequently assigned the contract to defendant Hampton Roads Finance Company (HRFC). The contract, which is subject to the Maryland Credit Grantor Closed End Credit Provisions (CLEC), Md. Code Ann., Com. Law § 12-001 et seq., charged a 26.99 percent interest rate, exceeding CLEC’s maximum allowable rate of 24 percent. HRFC sent plaintiff a letter about correcting this mistake. After receiving the letter, plaintiff fell behind on his payments, leading HRFC to take steps to collect on his account.

Plaintiff filed suit in state court alleging violations of CLEC and the Maryland Consumer Debt Collection Act (MCDCA), Md. Code Ann., Com. Law § 14-201 et seq., as well as breach of contract based on HRFC’s supposed failure to comply with CLEC. HRFC removed the case to federal court.

After limited discovery related to plaintiff’s CLEC allegations, the district court granted summary judgment to HRFC. The court held plaintiff did not present sufficient evidence that HRFC knowingly violated CLEC § 12-1018(b) and CLEC’s § 12-1020 safe-harbor provision shielded HRFC from any other basis for liability under the statute. The court also held that defendant’s breach of contract claim must rise and fall with his CLEC claim. Plaintiff appealed.

We hold that HRFC’s mere failure to disclose an interest rate below CLEC’s maximum is not a distinct violation of § 12-1003(a) for which liability may be imposed.

Safe Harbor

The district court also did not err in applying the safe-harbor provision in this case. Upon learning of its mistake in the interest rate, and but for the safe harbor, HRC would have had little reason to inform plaintiff of its error, lower his interest rate, and provide a refund. Instead, HRFC might well have chosen to do nothing, leaving it to plaintiff to discover the error. Consequently, applying the discovery rule in cases like this one is likely to exacerbate one of the harms CLEC seeks to avoid – the charging of usurious interest. On the other hand, if we reject the discovery rule in this instance, credit grantors will be encouraged to do exactly what the text of the statute encourages and what HRFC did here in fact: cure any CLEC violation upon learning of it and notify the debtor, who is otherwise unaware of any problem with the loan. HRFC’s cure letter provided plaintiff notice of the error, albeit somewhat cryptically. It identified a “problem” with plaintiff’s interest rate and then told him he was due a credit of $845.40. This information implies that plaintiff’s interest rate was too high – the “error” that HRFC cured under § 12-1020. We think this was enough to comply with the statute’s notice requirement. We conclude HRFC complied with § 12-1020’s notice requirement. We conclude HRFC’s cure was sufficient.

The district court also properly granted summary judgment to HRFC on plaintiff’s breach of contract claim. The contract incorporates all of CLEC, including its safe harbors. Just as liability under CLEC begets a breach of the contract, a defense under CLEC precludes contract liability.

However, the district court erred in granting summary judgment on plaintiff’s MCDCA claim. Because a reasonable jury could find that HRFC’s conduct violated the MCDCA, we conclude that HRFC is not entitled to summary judgment as to this claim. A jury could find that attempting to collect a debt by falsely claiming that legal actions have been taken against a debtor violates § 14-202(6).

Here, HRFC told plaintiff on at least three occasions that it had taken some legal action against him when (according to plaintiff) it had not. Contrary to what the district court held, a jury could find that this conduct, at least in the aggregate, could reasonably be expected to abuse or harass plaintiff. We reverse the district court order granting summary judgment to HRFC on plaintiff’s MCDCA claim and remand for further proceedings.

Affirmed in part, reversed in part and remanded.

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