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Court Reviews Discriminatory Lending Law in Maryland

Montgomery County, Md. Circuit Court Judge Michael D. Mason on March 7 issued an injunction staying a new law that would grant the county’s Human Rights Commission broad authority to impose steep fines against mortgage lenders accused of discriminatory lending practices.

The court issued the injunction while it reviews a legal challenge to the law filed by the American Financial Services Association (AFSA), a trade group representing mortgage lenders. In its filings, the association alleges that only the state, and not the county, has the authority to regulate mortgage lending.

The new law, which was approved by the county council in November, would prohibit lenders from steering borrowers to more expensive mortgages. In addition, the law would increase the number of lending practices considered discriminatory, including charging "abusive prepayment penalties” and financing “excessive points and fees.”

Opponents argue that the law does not adequately define discriminatory lending, making it difficult to determine when a violation occurs. They also argue that if the law is implemented, it will greatly diminish the availability of credit for potential home owners and will create an uncertain legal environment for lenders because it does not protect them against frivolous lawsuits.

Under the law, the Human Rights Commission could fine lenders up to $500,000 for “humiliation and embarrassment” resulting from a discriminatory lending practice. In addition, lenders would have to pay “any other relief” as determined by the commission.

Raquel Montenegro, associate director of  legislative affairs at the Maryland National Capital Building Industry Association (MNCBIA), noted that such monetary liabilities, and the legal uncertainties associated with them, would discourage lenders from making loans in Montgomery County and create roadblocks for the secondary mortgage market.

“Before the bill was introduced, 640 lenders placed loans in Montgomery County," she said. "After its introduction, approximately 70 lenders suspended lending operations, resulting in a $3.8 billion, nearly 15% of the market share, loss for Montgomery County,”

AFSA, the Mortgage Bankers Association and the Maryland builders worked to enjoin the law. The county court has scheduled a hearing on AFSA’s lawsuit for July 6. Two county council members have also introduced legislation to repeal the controversial law.

For more information about the Montgomery County lending issue, e-mail Raquel Montenegro at MNCBIA.

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