Bednar v. Provident Bank of Maryland, Inc.

JOHN C. ELDRIDGE, Judge (Retired, Specially Assigned). The issue in this case is whether the Circuit Court for Baltimore City erred in granting summary judgment to a bank that collected closing costs from a borrower solely because the borrower prepaid his loan. The petitioner, Andrew ⁵³⁵ Bednar, was a consumer borrower who obtained a second mortgage loan from the respondent, Provident Bank of Maryland, Inc. 1 The Circuit Court granted summary judgment to Provident, deciding that the bank did not violate the “Credit Grantor Closed End Credit Provisions” of Maryland Code (1975, 2005 Repl.Vol.), § 12-1009(e) of the Commercial Law Article, hereafter referred to as “CLEC.” Section 12-1009(e) provides that a “credit grantor may not impose any prepayment charge.” Because the Circuit Court determined that Provident did not violate CLEC, it also granted summary judgment in favor of Provident on Bednar’s second count, alleging that Provident violated the Maryland Consumer Protection Act, §§ 13-101 et seq. of the Commercial Law Article. We shall reverse and hold that the Circuit Court erred in granting summary judgment in favor of Provident.

I. On August 29, 2003, Andrew Bednar obtained a second mortgage from Provident in the amount of $17,000.00 at an annual interest rate of seven percent. The Loan Note and Security Agreement signed by Bednar stated that Provident Bank “elects to make this loan under Subtitle 10 of Title 12 of the Commercial Law Article of the Annotated Code of Maryland and federal law.” In addition to signing the Loan Note and Security Agreement, Bednar also signed a “Closing Costs Waiver Certificate.” The Waiver Certificate provided as follows: “As a condition to receiving a waiver of closing costs, you agree not to close the account for a minimum period of three years from the date of settlement. If the account is closed during the first three year period, the waiver will be rescinded and the closing costs will be added to the balance ⁵³⁶ of the account and will be due and payable immediately, without notice or demand, to Provident Bank.” Bednar did not pay any loan closing costs at the settlement. The Settlement Statement in connection with Bednar’s loan indicated that the closing costs were “paid by bank,” in other words, paid by Provident.

The closing costs amounted to $681.00 and, as reported on the Settlement Statement, included: Appraisal Fee $400.00 Abstract/Title Search $115.00 Recordation Fees $ 40.00 City/County Stamps $ 85.00 Release Fee $ 30.00 Flood Certification $ 11.00 Two years after the closing date, on July 19, 2005, Bednar refinanced with another lender and fully prepaid his Provident loan. In addition to the outstanding loan principal, Provident also collected $681.00 from Bednar at the settlement of his (refinanced loan. At the time of the closing, Provident did not inform Bednar that he was paying a charge in addition to the remaining principal. On December 14, 2005, Bednar filed, in the Circuit Court for Baltimore City, a class action complaint against Provident, and on March 8, 2006, he filed an amended class action complain t.

The amended class action complaint alleged that, in collecting the additional $681.00, Provident violated the Credit Grantor Closed End Credit Provisions (CLEC), §§ 12-1001 et seq. of the Commercial Law Article. Section 12-1009 provides, in pertinent part, as follows: “(a) Consumer borrower’s right to prepay.—A consumer borrower may prepay a loan in full at any time. * * * “(e) Prepayment charges prohibited.—In connection with any prepayment of any loan by a consumer borrower, the credit grantor may not impose any prepayment charge.” ⁵³⁷ Bednar also claimed that, by violating CLEC, Provident engaged in “unfair or deceptive trade practices” and therefore violated the Consumer Protection Act, §§ 13-301(1), (3), and (9). These sections provide as follows: “§ 13-301. Unfair or deceptive trade practices defined.

Unfair or deceptive trade practices include any: “(1) False, falsely disparaging, or misleading oral or written statement, visual description, or other representation of any kind which has the capacity, tendency, or effect of deceiving or misleading consumers; “(3) Failure to state a material fact if the failure deceives or tends to deceive; “(9) Deception, fraud, false pretense, false premise, misrepresentation, or knowing concealment, suppression, or omission of any material fact with the intent that a consumer rely on the same in connection with: (i) The promotion or sale of any consumer goods, consumer realty, or consumer service; (ii) A contract or other agreement for the evaluation, perfection, marketing, brokering or promotion of an invention; or (iii) The subsequent performance of a merchant with respect to an agreement of sale, lease, or rental.... ” Although not at issue on this appeal, Bednar’s complaint also alleged that Provident’s $681.00 charge violated the Interest and Usury laws, §§ 12-101 et seq. of the Commercial Law Article, and the Secondary Mortgage Loan Law, §§ 12-401 et seq. of the Commercial Law Article. On March 29, 2006, Provident moved to dismiss Bednar’s amended class action complaint; the Circuit Court granted the motion in part and denied it in part. The court dismissed the Interest and Usury laws and the Secondary Mortgage Loan Law causes of action, but denied Provident’s motion to dismiss ⁵³⁸ the causes of action under CLEC and the Consumer Protection Act. Provident subsequently filed a motion for summary judgment with respect to the causes of action under CLEC and the Consumer Protection Act.

Bednar filed both an opposition to Provident’s motion and a cross-motion for summary judgment. In support of its motion for summary judgment, Provident contended that the “deferred payment of closing costs,” as in this case, “has been approved by the Maryland Commissioner of Financial Regulation and all other state and federal regulatory agencies that have addressed this issue.” Specific ally, Provident relied on three letters from the Office of the Maryland Commissioner of Financial Regulation which appeared to approve a charge like the one imposed by Provident in this case. In one letter, the Deputy Commissioner explained as follows: “We do not interpret the later assessment of those fees, only if the loan is paid off before a certain date, as a prepayment penalty. Rather, we view the waiver of the fees as more in the nature of a benefit conferred upon borrowers who have not paid off their loan before the predetermined period of time.” Provident also relied upon letters from the State of New York Banking Department and the National Credit Union Administration to support its imposition of the $681.00 charge.

After holding a hearing on the motions, and reviewing memoranda, affidavits and exhibits in support of the motions, the Circuit Court filed a written opinion and entered a separate judgment which granted Provident’s motion for summary judgment and denied Bednar’s cross-motion. The Circuit Court in its opinion concluded that “Provident charged and disclosed to the Plaintiff at the time of [the] loan closing fees in the amount of $681.00 in accordance” with § 12—1005(b) of the Commercial Law Article. 2 In addition, the Circuit Court ⁵³⁹ determined that Provident did not violate CLEC by “recapturing the closing costs upon the Plaintiffs prepayment of his loan because the costs were imposed at the time of loan closing, not at the time of prepayment of the loan.... ” The Circuit Court’s opinion also stated that, “[i]n light of the Court’s review of the relevant loan documents and statutes, and its independent findings as set forth above, the court has chosen not to consider the interpretative letters of the Maryland Commissioner of Financial Regulation, or those of any other regulatory body .... ” Finally, the Circuit Court decided, based solely on its determination that Provident did not violate CLEC, that Provident did not violate the Consumer Protection Act, §§ 13-101 et seq. of the Commercial Law Article. Bednar filed a notice of appeal from the Circuit Court’s judgment. Before any consideration of the case by the Court of Special Appeals, Bednar petitioned this Court for a writ of certiorari.

Provident both answered the petition and filed a cross-petition for a writ of certiorari. This Court granted Bednar’s petition and denied Provident’s cross-petition. Bednar v. Provident Bank, 397 Md. 396 , 918 A.2d 468 (2007).

II

Bednar argues that the Circuit Court erred in granting summary judgment in favor of Provident because Provident’s charge of $681.00 violated § 12-1009 of CLEC. Bednar spe ⁵⁴⁰ cifically relies on § 12-1009(a), which permits a consumer borrower to “prepay a loan in full at any time,” and § 12-1009(e), which prohibits the imposition of any prepayment charge “[i]n connection with the prepayment of any loan by a consumer borrower.” According to Bednar, the language of CLEC is clear, unambiguous, and expressly forbids the $681. 00 charge imposed by Provident. Regarding the Consumer Protection Act cause of action, Bednar points out that the Circuit Court’s grant of summary judgment was based solely on the court’s “errant determination and ruling that Provident did not violate the CLEC.” (Petitioner’s brief at 28). Bednar further argues, contrary to the Circuit Court’s determination that the $681.00 charge was imposed at the earlier August 2003 loan settlement, that the $681.00 charge was “first and only imposed on [Bednar] at the July 2005 loan prepayment.” (Petitioner’s brief at 9).

Thus, Bednar emphasizes that the Settlement Statement recites that all loan closing costs were “paid by bank”—ie., paid by Provident. At no time during the August 2003 settlement were any costs or fees associated with settling the loan imposed on or paid by Bednar. In addition, Bednar contends that the Waiver Certificate signed.by him, indicating that he agreed to keep the loan open for three years, is unenforceable under CLEC, §§ 12-1023(b)(3) and 12-1023(b)(4)(i) of the Commercial Law Article. Section 12—1023(b)(3) states as follows: “Except as expressly allowed by law, an agreement, note or other evidence of a loan may not contain a provision by which the borrower waives any right accruing to the borrower under this subtitle.” Section 12—1023(b)(4)(i) provides as follows: “Any clause or provision in an agreement, note, or other evidence of a loan that is in violation of this subsection shall be unenforceable.” According to Bednar, “[a]s a matter of law, Provident’s Waiver Certificate is void and unenforceable and cannot justify Provident’s violation of’ CLEC.

(Petitioner’s brief at 15). ⁵⁴¹ Finally, Bednar asserts that, in failing to disclose that the $681.00 charge was a prepayment charge and thus unlawful, Provident violated Maryland’s Consumer Protection Act, §§ 13-301(1), (3), and (9) of the Commercial Law Article. According to Bednar, Provident made “other representations of any kind” within the meaning of § 13-301(1), failed to state a material fact in violation of § 13-301(3), and omitted a material fact in violation of § 13-301(9). Provident responds that the $681.00 was not a prepayment charge prohibited by § 12-1009(e). Provident labels its imposition of the $681.00 charge, at the time of Bednar’s prepayment, as a “recapturing” of the closing costs.

Provident states that CLEC authorizes it to charge and collect third party closing costs and governmental fees, and that the statute does not impose any time limit on the collection of such costs and fees. Since there is no statutory time limit on collecting closing costs, Provident asserts that conditioning the imposition of the $681.00 on the prepayment of the loan is acceptable. According to Provident, the prohibition of a prepayment charge in § 12-1009(e) should not be construed to “prohibit the imposition of ‘any charge at all’ at prepayment, but rather [to] prohibit[] only the imposition of’ charges which are not authorized by other statutory provisions. (Respondent’s brief at 13).

Provident also argues that the Circuit Court correctly held that, because Provident did not impose an impermissible prepayment charge, it did not violate the Consumer Protection Act. Alternatively, Provident contends that, even if there were a violation of CLEC, Provident did not violate the Consumer Protection Act because Provident did not misrepresent a material fact. Provident points out that § 13-301(3) prohibits the failure to state a “material fact.” According to Provident, a failure to state that the charge imposed on Bednar was illegal was not the omission of a “material fact,” but instead was a failure to inform Bednar of the applicable law. Provident asserts that it “was under no obligation to make any ⁵⁴² statements concerning the applicable law----” (Respondent’s brief at 31).

III

In considering a trial court’s grant of a motion for summary judgment, this Court reviews the record in the light most favorable to the