Maryland has enacted legislation that revises the rules of determining creditworthiness. On May 30, 2021, Maryland Governor Lawrence J. Hogan (R) signed HB1213 into law, which adds to Maryland Code Ann. Financial Institutions (FI) § 1-212.
Effective October 1, 2021, certain financial institutions (banking institutions, credit unions, savings and loan associations, community development financial institutions, and certain credit grantors) must adhere to the rules concerning evaluations of applications under federal law, specifically 12 C.F.R. § 1002.6. The affected financial institutions will also be required to consider the following as verifiable alternative indications of potential creditworthiness:
- History of rent or mortgage payments;
- History of utility payments;
- School attendance; and
- Work attendance.
Additionally, if an applicant requests, the financial institution must consider other verifiable alternative indications of creditworthiness presented by the applicant.
While there is no further indications of what constitutes “school attendance” or “work attendance”, this likely refers to measuring school or work attendance in the context of an component being evaluated. For example, a creditor may have to consider work attendance if the creditor is evaluating each component of the applicant’s income for reliability, such as assessing the probable continuance of employment income. Similarly, a creditor making student loans might have to consider school attendance if the creditor is assessing the likelihood of graduation.
The Maryland Department of Labor has stated here that entities subject to this legislation should be prepared to comply with these requirements starting on the effective date of October 1, 2021. This includes integration of the requirements into risk and compliance frameworks by establishing sufficient policies, procedures and control to ensure compliance with the changes to the rules.
This law is similar to other established state laws that require creditors to consider other information submitted by applicants. (See 815 Ill. Comp. Stat. Ann. 120/4, and Nev. Rev. Stat. Ann. § 604A.5038). Similarly, this law doesn’t require a creditor to change its underwriting standards. So while creditors will be required to consider information of this nature when provided by applicants, we do not think the practical impact of the legislation will be very large.