Michelle Williams v. Lendmark Financial Services

Filing

PUBLISHED AUTHORED OPINION filed. Motion disposition in opinion denying Motion to strike [999721626-2]; denying Motion to certify question to state court [999705129-2] Originating case number: 1:13-cv-01740-WDQ. [999882446]. [15-1976]

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PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT

No. 15-1976

MICHELLE WILLIAMS, f/k/a Michelle Dargan,
Plaintiff - Appellant,
v.
LENDMARK FINANCIAL SERVICES, INC.,
Defendant - Appellee.

Appeal from the United States District Court for the District of
Maryland, at Baltimore.
William D. Quarles, Jr., District
Judge. (1:13-cv-01740-WDQ)

Argued:

May 10, 2016

Decided:

July 8, 2016

Before NIEMEYER and WYNN, Circuit Judges, and Thomas E.
JOHNSTON, United States District Judge for the Southern District
of West Virginia, sitting by designation.

Affirmed in part, reversed in part, and remanded by published
opinion. Judge Niemeyer wrote the opinion, in which Judge Wynn
and Judge Johnston joined.

ARGUED:
Cory Lev Zajdel, Z LAW, LLC, Reisterstown, Maryland,
for Appellant.
Brian L. Moffet, MILES & STOCKBRIDGE P.C.,
Baltimore, Maryland, for Appellee. ON BRIEF: Megan B. Burnett,
MILES & STOCKBRIDGE P.C., Baltimore, Maryland, for Appellee.

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NIEMEYER, Circuit Judge:
In connection with a personal loan of roughly $2,600 that
Lendmark Financial Services, Inc., a Georgia corporation, made
to Michelle Williams, a Maryland resident, Williams was charged
and paid numerous late fees.
under

Maryland’s

Credit

In this action she challenges,

Grantor

Closed

End

Credit

Provisions

(“CLEC”), Md. Code Ann., Com. Law § 12-1001 et seq., the manner
in which Lendmark charged and applied those late fees.

After

the district court entered judgment for Lendmark, Williams filed
this appeal.
She

contends

(1)

that

Lendmark

violated

CLEC

and

the

promissory note that she signed by applying her monthly payments
first

to

late

charges,

then

to

interest,

and

finally

to

principal; (2) that it violated CLEC and the note by imposing
late charges on certain timely payments when it concluded that
its application of her monthly payments to satisfy earlier late
fees rendered the amount of the monthly payments insufficient to
pay the interest and principal due; and (3) that it violated
CLEC and the note by prematurely “assessing” late charges on its
accounting records by posting them after the close of business
on the fifth day of the five-day grace period provided for in
the note, rather than on the following day.

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For the reasons that follow, we affirm the district court’s
dismissal of Williams’ first and third claims and reverse the
dismissal of her second claim.

I
In

November

2009,

Williams

borrowed

$2,620.72

from

Lendmark, executing a promissory note in favor of Lendmark.

The

note required Williams to pay 36 monthly installments of $102.23
each, representing an annual interest rate of 20.24%.
note,

Williams

agreed

that

if

she

did

not

pay

In the

a

monthly

installment by the first day of each month plus a five-day grace
period, she would have to pay a late charge of 10% of the late
installment

or

$25,

whichever

was

the

greater.

The

note

provided that all payments were to be applied first to late
charges, then to accrued interest, and finally to principal.
Williams had three methods by which to make payments:

(1)

by making the payments in person at Lendmark branch offices,
which were open generally from 8:30 a.m. to 5:30 p.m.; (2) by
making

the

payments

over

the

telephone

to

Lendmark

branch

offices during business hours; and (3) by making the payments by
mail.
a

Thus, there were no means by which Lendmark could receive

payment

Accordingly,

on
in

a

given

day

administering

after
the

3

the

loan,

close
Lendmark

of

business.

posted

late

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charges on its accounting records after the close of business on
the fifth day of the five-day grace period.
For the first three months -- January to March 2010 -Williams made timely monthly payments of $106.
is

given

for

why

she

paid

$106

$102.23 specified in the note.

each

month

No explanation
rather

than

the

In April 2010, Williams made her

payment late and was charged a late fee of $25.

From then until

December 2010, she was charged a late fee of $25 three more
times -- in July, September, and October.

In December 2010,

however, she made a payment of $106 within the grace period.
Nonetheless,

Lendmark

charged

her

a

$25

late

fee

because

it

applied that month’s payment first to prior late fees and then
to

interest

leaving

her

principal.
2011 payment.

and
with

principal,
only

a

thereby,
partial

according

payment

of

to

Lendmark,

interest

and

The same circumstances occurred for her February
After March 2011, Williams’ payments were mostly

made in amounts less than the $102.23 specified in the note, and
she incurred late fees on each of those occasions.

Long after

the maturity of the note, Williams finally paid off the entire
loan, having been charged more than 40 late fees.
Williams commenced this action in the Circuit Court for
Baltimore City, alleging that Lendmark “charged numerous late
fees . . . in violation of CLEC,” the note, and other state law
obligations.

Lendmark removed the case to federal court under
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diversity jurisdiction and thereafter filed a motion to dismiss
the complaint.

The district court granted the motion as to all

claims except Williams’ claim that Lendmark “assessed late fees
. . . prior to the expiration of her 5 day grace period,” in
breach of the note’s terms and of CLEC.

After full discovery,

however, the district court granted Lendmark summary judgment,
dismissing this claim also.
From the district court’s judgment dated July 27, 2015,
Williams filed this appeal, raising three issues:

(1) whether

Lendmark’s application of installments first to late fees, then
to

interest,

note;

(2)

and

finally

whether

to

principal

Lendmark’s

violated

imposition

of

CLEC

and
fees

late

the
on

installments made in December 2010 and February 2011, which were
timely

made,

violated

CLEC

and

the

note;

and

(3)

whether

Lendmark’s posting of late fees on its books after the close of
business on the fifth day of the five-day grace period violated
CLEC and the note.

II
Williams contends first that the district court erred in
approving
toward

Lendmark’s

late

principal.”
first

to

fees,

application
then

toward

of

Williams’

interest

payments

and

last

“first
toward

She argues that the practice of applying payments

late

fees

violated

CLEC,

5

Md.

Code

Ann.,

Com.

Law

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§ 12-1008(c) (requiring that “all payments by the borrower shall
be applied to satisfaction of scheduled payments in the order in
which they become due” (emphasis added)), because late fees were
“not part of any ‘scheduled payment’ of principal and interest.”
Lendmark contends that its practice of applying Williams’
payments “‘first to late charges then to accrued interest and
then to the principal’ . . . was consistent with not only the
terms of her promissory note but also . . . § 12-1008 of CLEC,”
which authorizes a credit grantor to charge a late fee if “the
agreement, note, or other evidence of the loan permits,” Md.
Code Ann., Com. Law § 12-1008(b).

We agree.

CLEC expressly allows a creditor to impose late charges,
Md. Code Ann., Com. Law § 12-1008(a)(2)(i), but it limits the
manner in which such late charges may be imposed, providing:
(b)

In the case of a loan to a consumer borrower, no
late or delinquency charge may be charged unless
the agreement, note, or other evidence of the
loan permits. No more than 1 late or delinquency
charge may be imposed for any single payment or
portion of payment, regardless of the period
during which it remains in default.

(c)

For the purposes of subsection (b) of this
section, all payments by the borrower shall be
applied to satisfaction of scheduled payments in
the order in which they become due.

Id. § 12-1008(b), (c) (emphasis added).
In this case, the promissory note that Williams signed did
permit Lendmark to impose late charges, as authorized by CLEC:

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Late Charge:
If [Williams] do[es] not pay any
installment within 5 days after its scheduled or
deferred due date, [Williams] agree[s] to pay a late
charge of the greater of 10% of the unpaid amount of
the installment or $25.00. Only one late charge shall
be
charged
on
any
installment
or
part
of
an
installment.
For the purpose of computing late
charges, all payments by [Williams] shall be applied
to scheduled payments in the order they become due.
The late charge will be in addition to daily accrued
interest.
To make her argument, Williams urges an interpretation of
CLEC

and

the

note

that

would

require

that

each

payment

be

applied only to interest and principal, leaving for some later
unspecified date the payment of late charges.

But her argument

is not supported by either the language of the note or by CLEC.
Contrary to her suggestion that a “scheduled payment” can
only include interest and principal, the note simply defines a
“monthly payment” or “monthly installment” to be a payment of
$102.23, payable the first day of each month.

Nowhere does it

break down the $102.23 amount into components.
To

be

calculated

sure,
based

the
on

monthly
the

payment

amortization

amount
of

of

$102.23

principal

applicable interest rate over 36 monthly payments.

and

was
the

But it does

not follow that Lendmark must apply each monthly payment only to
principal and interest.

Indeed, what Williams agreed in the

note to pay each month is separate from how Lendmark agreed to
apply those payments.

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In

an

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effort

to

render

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her

obligation

to

make

monthly

payments of $102.23 somehow inapplicable to prior late charges,
Williams relies on language in the note that “all payments by
[her] shall be applied to scheduled payments in the order they
become due.”
in CLEC.
that

(Emphasis added).

She points to similar language

See Md. Code Ann., Comm. Law § 12-1008(c) (providing

“all

payments

by

the

borrower

shall

be

applied

to

satisfaction of scheduled payments in the order in which they
become due” (emphasis added)).

But Williams takes the language

from both the note and CLEC out of context.

In both locations,

the language was included for the purpose of calculating and
applying

late

charges.

Thus,

the

note

provided,

“For

the

purpose of computing late charges, all payments by [Williams]
shall be applied to scheduled payments in the order they become
due.”

(Emphasis added).

And CLEC provides similarly, “For the

purposes of [preventing more than one late charge on a monthly
installment], all payments by the borrower shall be applied to
satisfaction of scheduled payments in the order in which they
become due.”
on

which

(Emphasis added).

Williams

relies

Thus, not only is the language

included

only

for

the

purpose

of

defining how to calculate and apply late charges, the language
itself recognizes the right to apply payments to satisfy late
charges.

Williams provides no explanation as to how the note

and CLEC would provide for her discharge of her obligation to
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pay late charges.

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That omission is yet more glaring in view of

the fact that the note provides explicitly that “[e]ach payment
will be applied first to late charges, then to accrued interest
and then to the principal.”

(Emphasis added).

In short, under the note and consistent with CLEC, Williams
would

satisfy

her

obligation

to

Lendmark

simply

by

paying

$102.23 by the first day of each month or within the grace
period.

And Lendmark would satisfy its obligation to Williams

by applying each payment first to late charges, then to accrued
interest, and finally to principal.

Accordingly, if Williams’

payment were late or were made in an amount less than $102.23,
she would incur a late charge, which would be paid from the next
payment.

In that case, however, the principal would not be

fully repaid after 36 monthly payments because of the payments’
application to late charges, and Williams would have to continue
making payments until she paid the principal in full.

Indeed,

the note so provides:

“If any portion of the balance remains

unpaid

of

after

maturity

this

note,

whether

as

originally

scheduled or accelerated, [Williams] will pay interest on the
remaining balance until paid in full at the Interest Rate.”

And

in this case, Williams did continue making payments beyond the
36 months, eventually repaying the note in full.

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conclude,

therefore,

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that

Lendmark’s

practice

of

applying payments first to late charges was legal, both under
CLEC and under the terms of the note.

III
Williams also contends that, with respect to her December
2010

and

February

2011

payments,

which

were

timely

made,

Lendmark charged and collected late fees in violation of CLEC
and the note when it took the position that when these payments
were

applied

to

late

fees

from

earlier

months,

they

became

insufficient to pay fully the interest and principal due.

She

concludes, “In perpetuating this servicing tactic, Lendmark was
able to assess and collect multiple late fees from Williams that
it

was

not

entitled

to

assess

or

collect

under

CLEC

(i.e.,

December 2010; February 2011 late fees).”
Lendmark contends that even though the December 2010 and
February 2011 payments were in excess of $102.23 and were timely
made, they “were not for the amounts due” because she still owed
late fees imposed in earlier months and, when those fees were
satisfied from the payment, the remainder amounted only to a
partial payment, thereby triggering the late fees.
We conclude that Lendmark’s practice of charging late fees
solely because payments were applied first to earlier late fees
constitutes an improper collection of late fees, both because

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the note did not require monthly payments of amounts in excess
of

$102.23

and

because

the

charging

of

late

fees

based

on

application of an otherwise conforming payment to prior late
fees amounted to the collection of multiple late fees for a
single installment, in violation of both CLEC and the note.
First, while Lendmark concedes that Williams’ December 2010
and February 2011 payments exceeded the $102.23 required amount
(she paid $106 each month) and that they were timely made, it
argues in effect that Williams owed more than $102.23 in those
months

because

months.

This

she

had

accrued

argument,

late

however,

charges

again

during

confuses

previous

the

note’s

specification of the amount of payment with its authorization as
to

how

to

apply

each

payment.

Nowhere

in

the

monthly payment defined to be more than $102.23.

note

is

the

To be sure, if

Williams had a past-due late charge, the payment for the next
month would be applied first to that late charge.

But that

provision does not support a contention that the next month’s
payment of $102.23 was insufficient in amount.
Moreover, under Lendmark’s construction, the December 2010
and February 2011 payments were only partial payments because
the application of prior late charges caused Williams to pay an
insufficient amount to amortize principal and pay interest.

The

effect of this argument would be to impose a late charge because
of, and only because of, the application of a payment to a
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previously

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imposed

late

charge,

pyramiding late charges.
violates

both

the

promissory note.
delinquency

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effectively

compounding

or

We conclude that this interpretation

provisions

of

CLEC

and

the

terms

of

the

CLEC provides that “[n]o more than 1 late or

charge

may

be

imposed

for

any

single

payment

or

portion of payment, regardless of the period during which it
remains in default.”

Md. Code Ann., Com. Law § 12-1008(b).

And

the note itself provides, parroting CLEC, that “[o]nly one late
charge

shall

be

installment.”

charged
Yet,

on

the

any

only

installment

basis

that

or

part

Lendmark

of

had

an
for

charging late charges in December 2010 and February 2011 was its
application of those otherwise conforming payments to satisfy
prior late charges, effectively imposing multiple late charges
for the same installment.
While

it

is

true,

as

we

hold

above,

that

Lendmark

was

entitled to apply each payment that Williams made “first to late
charges, then to accrued interest and then to the principal”
without contravening § 12-1008, when this practice resulted in
more than one late charge being imposed for Williams’ failure to
make

a

scheduled

payment,

then

it

violated

§

12-1008.

The

charges Lendmark imposed in December 2010 and February 2011, and
perhaps in other months, despite Williams’ having made those
payments

before

the

end

of

the

grace

period,

certainly

multiplied late charges, thus violating CLEC and the note.
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Our
February

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conclusion
2011

with

payments

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respect

is

to

consistent

the

December

2010

with

Williams’

and

argument

that 16 C.F.R. § 444.4, a regulation promulgated by the Federal
Trade

Commission,

interest.”

bars

“pyramiding

late

fees

and

inflating

Lendmark, however, has filed a motion to strike this

argument because Williams failed to assert it before her reply
brief, depriving the district court of the opportunity to rule
on it in the first instance and Lendmark of the opportunity to
address

it.

Although

Williams

should

have

cited

16

C.F.R.

§ 444.4 earlier, we need not assess the merits of Lendmark’s
motion to strike because we reach our conclusion on this latecharge

issue

apart

from

any

reliance

on

that

regulation.

Accordingly, we deny Lendmark’s motion as moot. ∗
Thus, we conclude that Lendmark was not entitled to charge
a late fee in December 2010 or February 2011, or in any month in
which Williams paid an installment timely and in full.

The

payments that Williams made in December 2010 and February 2011
of $106 exceeded the $102.23 amount specified in the note and
each payment was timely made.
Because

we

hold

that

Williams’

complaint

alleging

these

facts states a plausible claim for relief, at least with respect
to the December 2010 and February 2011 payments, we reverse the
∗

We also deny Williams’ motion to certify the question to
the Court of Appeals of Maryland.
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district court’s dismissal of this claim and remand for further
proceedings.

IV
Finally, Williams contends that Lendmark violated CLEC and
the

note

by

prematurely

“assessing”

late

fees,

posting

them

after the close of business on the fifth day of the grace period
rather than waiting until the following day.

She argues that a

“day” of the grace period consists of a full 24-hour period.
Lendmark

contends

that

because

it

was

not

possible

for

Williams to make payments after the close of business on the
fifth day of the grace period, any payment not made by the close
of business on that day was, in effect, late.
CLEC permits a creditor to charge a late fee to a borrower
if “the agreement, note, or other evidence of the loan permits.”
Md.

Code

Ann.,

Com.

Law

§

12-1008(b).

Therefore,

whether

Lendmark violated CLEC in the manner Williams alleges becomes a
question of contract interpretation based on the text of the
promissory note.

And the promissory note in this case provides:

Late Charge:
If [Williams] do[es] not pay any
installment within 5 days after its scheduled or
deferred due date, [she] agree[s] to pay a late charge
of the greater of 10% of the unpaid amount of the
installment or $25.00.
In

effect,

this

provision

simply

provides

that

Lendmark

may

charge Williams a late fee if she does not pay “any installment

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within 5 days after its scheduled or deferred due date.”

When

Lendmark booked or assessed such a late charge on its internal
accounting

records

is

irrelevant

to

the

issue

of

whether

it

properly charged Williams for being late.
In this case, Williams was only charged late fees after she
did “not pay [the] installment within 5 days after its scheduled
or deferred due date” (except, as noted earlier, in December
2010, February 2011, and any other month in which she timely
paid at least $102.23).

Thus, regardless of how the term “day”

is defined or interpreted, on each occasion on which Williams
was charged a late charge (except, e.g., in December 2010 and
February 2011), she did not pay the requisite installment within
five days of the due date.

Because the conditions of the note

for the imposition of a late fee were therefore satisfied in
each

case

where

a

late

fee

was

charged

(except,

e.g.,

in

December 2010 and February 2011), we reject her contention that
Lendmark

somehow

violated

the

promissory

note

by

“assessing”

late fees on its books after the close of business on the fifth
day of the grace period.

Accordingly, we affirm the district

court’s summary judgment on this issue.
The judgment of the district court is
AFFIRMED IN PART,
REVERSED IN PART,
AND REMANDED.

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