Simpkins v. Ford Motor Credit Co.

SONNER, Judge. The Maryland Constitution, Article III, section 57, provides that the legal rate of interest is six percent per year, “unless otherwise provided by the General Assembly.” This is an old and enduring provision of our constitutional law, with roots to the Maryland Constitution of 1851. The Court of Appeals reaffirmed its significance in United Cable Television of Baltimore v. Burch, 354 Md. 658 , 732 A.2d 887 (1999). In this appeal, we are asked whether the General Assembly did indeed allow for a late fee greater than six percent when an automobile retailer leases a car to a consumer, and the customer fails to pay a monthly payment on time.

The Court of Appeals in Burch forecasted the emergence of such a question, but did not answer it. See id. at 685 , 732 A.2d 887 . The Circuit Court for Prince George’s County ruled that the late fees that Ford Motor Credit Company levied against Wendy Simpkins under two car leasing agreements were not interest payments, within the meaning of the Constitution and Burch . Alternatively, it ruled that the late fees were permissible interest payments that the General Assembly sanctioned by statute.

Simpkins challenges those rulings on appeal. 1 ⁴ We, however, agree with the circuit court that the late fees were lawful, so we affirm the judgment of the circuit court. I. A. The Lease Agreement The facts for this appeal are simple and uncontested. On September 5, 1996, Wendy Simpkins leased a Mazda automobile from Primus Automotive Financial Services, Inc, a subsidiary of Ford Motor Credit Company. The contract established a monthly payment of $430.70 for three years.

It also stated: “You will pay a late charge on each payment that is not received within 10 days after it is due. The charge is 7.5% of the full amount of the scheduled payment or $50.00, whichever is less.” Simpkins paid at least one late charge under this lease. On September 6, 1999, Simpkins entered into another three-year lease agreement with Ford Motor. This agreement provided for a monthly payment of $437.73 and contained the same late charge provision, to which Simpkins was subjected at least once. : According to Ford Motor, the Motor Vehicle Consumer Leasing Contracts Law, section 14-2002(g) of the Commercial Law Article, 2 authorized it to impose late fees.

That law provides: (1) If the lease permits, a lessor may impose on the lessee: , (i) A late or delinquency charge for payments or portions of payments that are in default under the lease; (ii) A collection charge, which may include all court and other collection costs actually incurred by the lessor, and, if the lease is referred for collection to an attorney who is not ⁵ a salaried employee of the lessor, a reasonable attorney’s fee; (iii) If any payment is made to the lessor with a cheek that is dishonored on the second presentment, a charge not to exceed $15. In July 2001, Simpkins filed a class action complaint against Ford Motor, alleging that, notwithstanding section 14-2002(g)(l)(i), the late charges levied against her, in excess of six percent, violated the Maryland Constitution. She sought compensatory, injunctive, and declaratory relief in a seven-count complaint. Following Ford Motor’s unsuccessful effort to have the case removed to the federal court, the circuit court held a hearing on February 4, 2003. 3 That hearing proceeded under an agreed statement of facts and for the sole purpose of answering the legal question of whether the late fee was unlawful.

B. United Cable Television of Baltimore v. Burch Burch, 354 Md. 658 , 732 A.2d 887 , was the natural starting point for the circuit court’s consideration of the question presented. The focus of that case was a $5.00 late fee that a cable service in Baltimore charged its subscribers if they did not pay their bills by a particular date. The Court of Appeals held that the late fee, or what the cable company described as a liquidated damages provision, was unlawful because it was ⁶ greater than the six percent per annum cap. The court reasoned: Under Maryland law, a [cable] customer’s promises are a contract to pay money.

From this conclusion, two consequences flow that are relevant to this case. First, the measure of damages for the breach of a contract to pay money is the amount promised to be paid plus interest at the lawful rate from the due date to the date of judgment. Second, because this measure of damages is simply a matter of calculation, it may not be increased by a contractual liquidated damages provision requiring payment of a greater amount. The result is that the liquidated damages provision is a penalty.

Id. at 668 , 732 A.2d 887 . These common law principles applied because the General Assembly had not provided otherwise by statute. The Court then divided the Maryland late-charge statutes, which supercede the common law, into four categories. “Class I statutes regulate the amount and timing of a late charge.” Id. at 675 , 732 A.2d 887 . “[A] Class II statute regulates the amount and timing of late charges and, in addition, expressly provides that those charges are not interest.” Id. at 676-77 , 732 A.2d 887 . “Class III statutes authorize late charges without fixing any maximum late charge. Further these statutes expressly state that any late charge permitted by the statute is neither interest nor a finance charge.” Id. at 677 , 732 A.2d 887 .

Finally, “[c]lass IV statutes simply recognize that late charges, or late charges permitted by law, may in fact be assessed.” Id. at 678 , 732 A.2d 887 . The Court then reasoned: If one views the Class I, II, and III statutes against the background of the common law rule, these statutes permit that which would otherwise be unpermitted, as contrasted with regulating that which is permitted, but otherwise would be unregulated. Reinforcing this conclusion are the disclaimers stating that certain statutorily authorized late charges are not interest. These disclaimers reveal concern, ⁷ if not an underlying legal conclusion, that the late charges, absent statutory authorization, would constitute interest on the presently due and payable debt and would be subject to the limitations on interest.

The Class IV statutes may present a separate problem of statutory construction. Nevertheless, for purposes of this opinion, we shall assume that the Class IV statutes also change the common law rule with respect to damages for a default under a contract to pay money. Id. at 680 , 732 A.2d 887 . The Court clarified, however, that it gave “no opinion” as to whether the late charges identified in Class IV statutes constituted interest for constitutional purposes.

Id. at 685 , 732 A.2d 887 . The motor vehicle leasing statute at issue here, section 14-2002(g), under which Ford Motor levied its late charge, is a Class IV statute. It identifies the possibility of a late charge, but does not set a specific amount, or assert one way or the other whether the late charge should be treated as interest. C. The Legislature’s Response to Burch Along with Burch , the circuit court had before it the General Assembly’s response to Burch , Senate Bill 145, which the Governor signed into law on April 25, 2000.

See 2000 Md. Laws, ch. 59. This law created section 14-1315 of the Commercial Law Article, which provides: (a)(1) In this section the following words have the meanings indicated. (2) “Consumer contract” means a contract involving the sale, lease, or provision of goods or services which are for personal, family, or household purposes. (3) “Contract”, unless specifically provided otherwise, includes consumer, commercial, and business contracts, covenants, leases of any kind, and tariffs on file with any regulatory authority.

(4) (i) “Late fee” means any charge or fee imposed because a payment is not made when the payment is due under the terms of a contract. ⁸ (ii) “Late fee” includes a fee imposed under subparagraph (i) of this paragraph that is described: 1. As a flat rate; 2. As a percentage of the amount due; or 3. In any other terms.

(b) The parties to a contract may agree to require the payment of a late fee when a party fails to make a payment when the payment is due. (c) A contract that requires the payment of a late fee shall disclose, by its terms or by notice: (1) The amount of the late fee; (2) The conditions under which the late fee will be imposed; and (3) The timing for the imposition of the late fee. (d) A late fee imposed under this section is not: (d) A late fee imposed under this section is not: (1) Interest; (2) A finance charge; (3) Liquidated damages; or (4) A penalty. (e) This section does not affect a late fee, a finance charge, interest, or any other fee or charge otherwise allowed under applicable law.

The General Assembly mandated that this law “apply to any case pending or filed on or after June 1, 2000.” See 2000 Md. Laws, at § 6. Moreover, endeavoring to quell the sting that Burch inflicted on the business community, the General Assembly also included a retroactivity provision. 4 This rendered