A class action lawsuit in Maryland has broadened the scope of who can be held liable for a violation pursuant to Maryland’s Maryland Consumer Debt Collection Act (MCDCA). The decision carries important implications for mortgage and debt servicers in Maryland, and serves as a cautionary tale for mortgage and debt servicers in other jurisdictions if similar issues are to arise and this holding be viewed as persuasive authority. 

The MCDCA prohibits a “collector” from “engag[ing] in any conduct that violates §§ 804 through 812 of the federal Fair Debt Collection Practices Act (FDCPA). The MCDCA applies to any “collector,” which the Act defines as any “person collecting or attempting to collect an alleged debt arising out of a consumer transaction.” In contrast, the FDCPA has a narrower scope of applicability, and uses the term “debt collector,” a term that is subject to certain limitations and exceptions. One such limitation is a proscription for a debt collector to engage in “[t]he collection of any amount (including any interest, fee, charge, or expense incidental to the principal obligation) unless such amount is expressly authorized by the agreement creating the debt or permitted by law.” This limitation came under scrutiny in the Maryland Fourth Circuit appeals court, when plaintiffs in a class action suit alleged that a mortgage servicer’s  attempt to collect certain mortgage servicing fees violated both of the aforementioned sections of the MCDCA and FDCPA. 

Finding that the servicer meets the definition of a “collector” under the MCDCA, the court ruled the  mortgage servicer could be held liable for engaging in conduct that violated the FDCPA — even if it was not actually subject thereto. Reasoning that even though the FDCPA only applies to “debt collectors” and, even though the MCDCA, in contrast, only prohibits conduct that violates the FDCPA, an entity could still be in violation of the state act (MCDCA) even if it was not engaging in debt collection under the federal act (FDCPA). 

The consequences of this ruling are twofold: Foremost, this holding makes mortgage servicers, who would otherwise be exempt from liability under the FDCPA, now exposed potential liability by virtue of violating a state act, such as the MDCA. Concurrently, the FDCPA contains a number of exemptions to FDCPA liability for actors other than mortgage servicers, including entities collecting their own debts, process servers, and some credit counseling nonprofits. Under the Fourth Circuit’s holding, all of these actors are now ripe for potential liability under the MCDCA for FDCPA violations within Maryland. Whether this case will become precedent for other circuits is to be seen, but widening the reach of liability for entities engaged in providing mortgage and debt services, carries notable possible implications.