On January 10, HB 254, entitled the True Lender Act, was introduced before the Maryland House of Delegates. The Act would amend the Maryland Commercial Law to add an article containing both predominant economic interest and totality of the circumstance tests to determine the “true lender” of a loan. A hearing on HB 254 is scheduled on January 23.

HB 254 contains an anti-evasion provision providing that a person must not attempt to evade the Act’s requirements by making, offering, assisting, or arranging for a loan with a greater rate of interest than permitted by Maryland state law, making loans disguised as a personal property sale and leaseback transactions, or disguising loan proceeds as a cash rebate for an installment sale of goods or services.

Under current law, Maryland’s Commercial Law title includes both the usury law and substantive regulations on licensed lenders under the Maryland Consumer Loan Law and Credit Grantor articles. The Act expressly subjects a person to the requirements of the Maryland’s Commercial Law “notwithstanding a claim by the person to be acting as an agent, as a service provider, or in another capacity” for a bank or other covered lender in three situations. First, if the person directly or indirectly holds, acquires, or maintains the predominant economic interest in the loan or extension of credit. Second, if the person both markets, brokers, arranges, or facilitates the loan or extension of credit and holds the first right of refusal, receivables, or other interest in the loan or credit extension. Third, where the totality of the circumstances show that the person is the lender and the transaction is structured to evade the requirements of the Act.

Circumstances indicating a person is the lender, include when such person:

• Indemnifies, insures, or protects a covered lender from any costs or risks related to the loan;
• Predominantly designs, controls, or operates the loan or credit program;
• Holds the trademark or intellectual property rights in the brand, underwriting system, or other core aspects of the loan program; or
• Purports to act as an agent, service provider, or in another capacity for a covered entity while acting directly as a lender in other states.

A consumer finance loan made in violation of HB 254 is void and uncollectible. If passed, the Act will become effective on October 1, 2024.

Maryland has been notably aggressive in using its existing laws to attack bank partnership programs — including those with rates of 36% or less — and, if enacted, HB 254 arguably would place Maryland among the most hostile jurisdictions for such programs. It also would join the list of states that have enacted or proposed legislation adopting anti-evasion provisions directly targeting bank partnerships, including legislation passed in Minnesota, discussed here, Connecticut, discussed here, Nebraska, discussed here, and proposed in Florida, discussed here, and Washington D.C., discussed here.