Imposing a Lien Processing Fee May Lead to a Violation of the Maryland Consumer Protection Act

Posted on by Ashley E. Mullen in Litigation.

On October 7, 2014, the Court of Special Appeals issued its opinion in Allstate Lien & Recovery Corp. v. Stansbury that a processing fee may not be part of a garageman’s lien and, additionally, that the charging of the processing fee violated the Maryland Consumer Debt Collection Act.

The scenario in Stansbury is fairly ordinary: a man brought his automobile to the repair shop, signed off on the repairs, and then was unable to pay his bill. The repair shop filed a lien on the automobile in order to satisfy the customer’s debt. A lien is attached to the automobile, which was eventually sold at auction to pay the debt.

While this is a situation that most small-business owners dread about as much as their customers, it is not uncharted legal territory. Rather, the Maryland General Assembly codified the rights of a repair shop or garage in Md. Code Ann., Coml. Law §16-202. Quite simply, if the shop has the owner’s consent to provide a service or material to an automobile (or an airplane, boat, or mobile home), it has lien on that automobile for the cost of repair, storage, tires, or other parts and accessories.

The dispute in Stansbury arose because the repair shop added a $1,000 processing fee to the lien amount (taking it from $6,630.37 to $7,630.37). The Court’s first task was to determine whether the fee should be part of the lien. Despite the fact that the fee was directly related to the shop’s insurance company’s processing of the lien, the Court found that the nature of a processing fee is not contemplated by the express language of the statute. Thus, it could not be included in the lien.

After making this finding, the Court reviewed the jury’s finding in favor of the customer under the Maryland Consumer Debt Collection Act (“the Act”). The trial court instructed the jury about the Act which provides that a debt collector may not claim, attempt, or threaten to enforce a right with knowledge that the right does not exist. (Md. Code Ann., Com. Law III §14-202). The jury found in favor of the customer and awarded him over $16,000 plus attorney’s fees. On appeal, the Court upheld this decision. The Court’s reasoning was that, because the repair shop (and, by proxy, the insurance company) was charging a fee that was not permitted to be incorporated into the lien, it was attempting to enforce a right that did not exist.

The Court in Stansbury drew a distinction between its case and a case decided last year by the Federal District Court for the District of Maryland in Fontell v. Hassett, 870 F.Supp.2d 395 (D.Md.2012). Fontell is a case where a community association manager was collecting consumer debts without a license in violation of Md. Code Ann., Bus. Reg. §7-101. The Court found that there was no liability under the Maryland Consumer Debt Collection Act because the Act is meant only to proscribe methods of debt collection, not the actual debt itself. In Stansbury, the customer never argued that he was not subject to the debt (the actual work done to the automobile), but he did challenge the $1,000 processing fee of the lien. Therefore, he was challenging the method of the collection, thus putting his concern squarely in the sights of the Act.

In summary, the repair shop and insurance company did not have the right to include the processing fee in the lien and, therefore, a jury could find that the repair shop and insurance company violated the Maryland Consumer Debt Collection Act by attempting to enforce a right that did not exist.

Stansbury stands for the proposition that a violation of the Mechanic’s Lien statute can lead to a violation of the Maryland Consumer Debt Collection Act. This, in turn, can lead to a violation of the Maryland Consumer Protection Act, with its attendant penalties, including the assessment of attorney’s fees.

As always, anyone seeking assistance in confirming their lien rights, and complying with the Maryland Consumer Debt Collection Act is invited to contact Ferguson, Schetelich & Ballew, P.A. at 410-837-2200.