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Maryland Court Describes Credit Repair Law’s Connection With Pay Day Lending, Rejects Application To Tax Preparation

Does a Maryland law aimed at the "credit repair business" apply to tax preparation services?  No, says the Maryland Court of Appeals in a decision issued yesterday in Gomez v. Jackson Hewitt, Inc., — A.3d —-, 2011 WL 1167189 (Md. App. Ct. 2011).

Maryland[1] In reaching its decision, the court described its views on the law, which was initially enacted to protect individuals "from credit repair agencies who offered to ‘fix’ their credit rating, or to obtain loans for the credit impaired customer, in exchange for a fee."  Among the views discussed, in response to the arguments of appellant and amici curiae, were those relating to the law's connection to pay day lending:

In 2001, the General Assembly enacted Senate Bill 882, which amended [Maryland Commercial Law,] C.L. § 14–1902, by adding to the list of prohibitions for credit services businesses . . .: credit services business may not “. . . assist a consumer to obtain an extension of unsecured closed end credit at a rate of interest which, except for federal preemption of State law, would be prohibited . . . this Article.”  . . . .  

[A] newly created subsection . . . also provided for the establishment of a Short–Term Small Consumer Loan Study Commission . . . .

Amicicites a letter in the bill file . . . from then Assistant Attorney General Robert A. Zarnoch, now a judge on this Court, dated March 19, 2001.  In his letter, Judge Zarnoch, writing in his capacity as Counsel to the General Assembly, explained that he wrote in response to a request for advice as to whether the proposed legislation “is preempted by or in conflict with federal law.”  He concluded that, in his view, the legislation “is not preempted by or in conflict with federal laws regulating national banks and federal savings and loan associations.”  In describing the purpose of the legislation, Judge Zarnoch wrote: “The legislation is primarily aimed at ‘payday loans' and particularly, third party arrangements that some federally-insured depository institutions, such as national banks and federal savings and loan associations, have entered into with local agents (usually a check cashing business) to broker such loans.” . . . .  The letter went on to conclude that, in his opinion, regulating third-party facilitators, such as those involved in “pay day loans,” did not conflict with and was not preempted by federal law.  Amici state that “this letter, which was considered contemporaneously by legislators who enacted the 2001 amendment . . . highlights the well-understood application of the Act to arrangers of consumer credit unrelated to credit repair services.” . . . .

The following year, the General Assembly once again [enacted an amendment, which said its purpose was to prohibit credit services businesses] . . . from assisting a consumer to obtain an extension of credit at a rate of interest which, except for federal preemption of State law, would be prohibited under certain provisions of law governing credit regulation . . . .

Amici assert that, after the enactment of the 2001 amendment, the General Assembly failed to achieve its legislative purpose of regulating payday lending completely; thus, the General Assembly passed [the 2002 amendment] . . . .

Amici also cite written testimony [in which the Commissioner of Financial Regulation said the amendment] . . .  "would attempt to prohibit payday loans being offered in Maryland by third party agents of lenders" . . . [and said the 2001 amendment] "attempted to achieve this result" . . .[and that amendments to the 2001 bill] "resulted in its failure in fact to prevent payday lending as intended." . . . .

Appellant and amici contend that the foregoing is evidence that the General Assembly was fully aware that the [credit services law] . . . applied to businesses that assist consumers in obtaining credit, no matter what the purpose or intent of that loan.

While these amendments and the legislative history surrounding their enactment indicate that the General Assembly intended to regulate credit services businesses who use third-party lenders with higher interest rates than permitted by Maryland law, we are not persuaded that the amendments or the legislative history indicate that the General Assembly ever contemplated regulating a business engaged in income tax return preparation that acts as a facilitator to permit a customer to pay a third party . . . .

Gomez v. Jackson Hewitt, Inc., — A.3d —-, 2011 WL 1167189 (Md. App. Ct. 2011).

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