Is your servicer next? Here's what the Maryland ruling means for compliance going forward
A Maryland appeals court just told loan servicers: those convenience fees you've been charging? Not legal. Not now, not ever.
If you work in mortgage servicing, November 25 might be a date worth remembering. That's when Maryland's Appellate Court made a decision that could reshape how your company manages fees across a loan's entire lifespan. No more charging borrowers for the privilege of paying via phone. No more slipping in service charges whenever you feel like it. The court said that if you service a loan, you're bound by consumer protection rules from day one until that final payment clears.
The case started simply enough. Tonda Baxter took out a mortgage through NFM, Inc. in June 2018 for $284,747. The note changed hands a few times, which happens all the time in this business. In September 2021, Nationstar took over servicing under Lakeview. Nothing unusual there.
Then Nationstar added two phone payment options: $14 for automated service and $19 for speaking with a representative. Over six months, Baxter paid $103 in these convenience fees. Not a fortune, but it got her thinking. Were these fees even legal?
She sued, arguing the fees violated Maryland's credit protection law. Lakeview and Nationstar pushed back hard. They made an argument that makes sense at first: we're just servicers, not lenders. We didn't originate the credit. The fee rules apply when loans get made, not when they're serviced. We're not credit grantors under the law. Therefore, the restrictions don't apply to us.
The circuit court disagreed. The appeals court agreed with the circuit court.
Here's what the appeals court decided: if you service a loan that was made under Maryland's consumer protection law, you're a credit grantor whether you like it or not. You inherited that status when you acquired the servicing rights. The law regulates the relationship between lenders and borrowers across the entire loan, not just at closing. It doesn't matter if you charge a fee on day one or day three thousand. If it's not explicitly permitted, it's prohibited.
The court went further. It noted that loan servicers actually have real power under these loans. You collect payments, issue statements, charge late fees, adjust escrow amounts, and handle borrower communications. You're not just processing paperwork. That authority comes with responsibility. The court couldn't fathom how servicers could exercise these powers but somehow escape the rules that govern them.
For the mortgage industry, this means several things. First, audit your fee practices carefully. Convenience fees charged by Nationstar and others for alternative payment methods are now clearly off limits in Maryland. Second, understand that when you acquire servicing rights, you take on the obligations that came with those rights from origination. You can't claim ignorance about the loan's original terms and conditions.
Third, penalties matter. Maryland law lets borrowers recover three times any unauthorized fees for knowing violations. That $103 could have become $309. Scale that across thousands of borrowers and it gets serious fast.
The decision is final. No further appeal is pending. For loan servicers operating in Maryland or considering their national practices, the message is unmistakable: compliance with consumer protection law extends across the entire loan relationship, not just the origination.
