On July 1, the Maryland Special Court of Appeals partially upheld a trial court’s dismissal of the claims filed under the Maryland Grantor’s Closed Credit Provisions (CLEC) due to the lack of damages of the plaintiff. Specifically, the court ruled that a plaintiff could, in theory, assert a CLEC claim without having paid more than the principal balance of its loan, but would have virtually no damage under it. such claim until he has paid more than the principal balance. Therefore, such a claimant could only seek declaratory or injunctive relief under the CLEC.
In Bolling v. Bay Country Consumer Finance, Inc., the plaintiff financed a vehicle with Bay Country Consumer Finance, Inc. (Bay Country). After Bolling’s default, the vehicle was repossessed and sold for less than the principal amount of the loan in question. Bolling filed a complaint alleging that Bay Country violated CLEC by failing to provide it with a written statement containing all the information required by law before repossession and sale. Bay Country requested the dismissal, arguing, among other things, that Bolling (1) could not make a claim under CLEC until it paid more than the principal balance of the loan, and (2) did not had no recoverable damages because she had not paid more than the loan principal balance. Relying on the precedents of federal courts, including the District of Maryland and the Fourth Circuit, the trial court allowed Bay Country’s motion to dismiss on these two grounds.
On appeal, the Maryland Special Court of Appeal assessed the language of CLEC, legislative history and precedent of Maryland interpreting the law to conclude that a notional claimant may be able to make a claim under the CLEC for a declaratory or injunctive judgment even if he had not paid more than the principal balance of the loan. The court, however, upheld the second ground for rejection, finding that a claimant had no recoverable damage under CLEC until he paid, at a minimum, the principal balance of the loan. In reaching this conclusion, the court noted that “[p]from a practical point of view, it is difficult to imagine the imposition of damages under [CLEC] when the borrower has not paid the principal amount. So, although the Special Court of Appeal disagreed with the earlier decisions of the Fourth Circuit and the District Courts, it came to the same result and upheld the dismissal of the lower court because Bolling had no damages and had not requested a declaratory or injunctive judgment.
Less than a month after the Bolling decision, another formation of the Special Court of Appeal issued an unpublished opinion in Colbert v. Capital One National Association, upholding the requirement for CLEC claimants to plead damages or fair relief and rejecting the same legal theories presented in Bolling. After the Colbert the plaintiff’s vehicle had been repossessed and sold, she brought an action alleging a violation of CLEC arising from the convenience charges. Colbert claimed that CLEC allowed her to sue for the alleged violation even though she never paid more than the principal amount of the loan and did not plead the facts in support of a declaratory measure. or an injunction. Based on the reasoning of Bolling, the court upheld the dismissal of Colbert’s case because she had not alleged damages and was not entitled to a declaratory or injunctive judgment.
the Bolling and Colbert the decisions are of particular importance to consumer-facing businesses that transact in Maryland, particularly in the area of auto financing. In practice, the decisions should have limited effect. Bolling and Colbert assert the traditional concept that a plaintiff has no cause of action without damages. However, in certain limited situations, declaratory or injunctive relief may be available for some CLEC applicants who have paid less than the principal amount of the loan.
Troutman Pepper regularly advises auto finance companies and other consumer-oriented institutions in Maryland and across the country. We will continue to monitor developments in this space.