Fannie Mae’s Usury & Junk Fee Practices Challenged in Maryland

March 6, 2023

In the age of George Bailey’s Building and Loan Company and even in the long-ago era of King Henry VIII, usury was thought of simply as excessive interest charged by some banks and other lenders beyond what was reasonable and certain to lead to failure and default—and even more profits for lenders from those who could least afford it. Because usury has had devastating impacts in history, as a modern policy issue there seems to now be a universal acceptance among faith communities—including Judaism, Christianity, and Islam—against usury.  Imagine that three major faith groups all agree usury should be avoided.

So what is usury in the modern world?  The Supreme Court of Maryland recently explained the evolution and negative impact of usury as follows:

The Usury Law defines “usury” as “the charging of interest by a lender in an amount which is greater than that allowed by [law]” [So,] [t]he law regulate the amount of interest that may be charged…However, since money is fungible and people are creative, efforts to circumvent the restrictions of the Usury Law have sometimes taken the form of fees or other charges that were assessed to the borrower….

Usury is a moral taint wherever it exists and no subterfuge shall be permitted to conceal it from the eye of the law…. “[I]t matters not in what part of the transaction it may lurk, or what form it may take … or whether it be a pretended sale and lease, or under whatever guise the lender – always fruitful in expedients – may attempt to evade the law, Courts of justice, disregarding the shadow and looking to the substance, will ascertain what in truth was the contract between the parties.”

Nationstar Mortg. LLC v. Kemp, 476 Md. 149, 158–59 (2021)(cleaned up)(emphasis added).

 What’s then emerged in the modern financial services market are efforts by financial service companies, including those you would not expect to do so like Fannie Mae, to establish “creative” ways increase their profits and their debt collectors’ profits and avoid the state usury laws that apply to every other financial service provider.  These actors simply seek a competitive advantage over their competition who choose not to violate the law and not to impose, charge, and collect usury.  So, not only are consumers harmed by usury practices but so also are honest businesses who do not cross the line or even close to the line of imposing usury barred by law.

 In the modern era, as explained by the Maryland Supreme Court, creative efforts are advanced by actors like Fannie Mae to evade usury caps.  Instead of charging excessive interest they just charge borrowers with excessive junk fees and disguise them to pretend they are not caught imposing usury. At the Federal level there is a fair amount of scrutiny right now on the junk fees being charged by the financial service industry.  Last Fall, at a meeting of the White House Competition Council, President Biden called on all agencies to reduce or eliminate hidden fees, charges, and add-ons.  According to the White House announcement from this initiative, “these so called ‘junk fees’ are not just an irritant – they can weaken market competition, raise costs for consumers and businesses, and hit the most vulnerable Americans the hardest.”

 While the ‘talk’ about junk fees sounds good in press releases, in practice some actors like Fannie Mae are fighting to keep their junk fees and to not to be held accountable for doing so.  To escape responsibility for collecting through its debt collector millions in junk fees from thousands of Maryland residents over the last decade or more, a group of homeowners and former homeowners filed a brief in the Appellate Court of Maryland this week seeking to hold Fannie Mae accountable for its unlawful usury conduct.  Fannie Mae’s collector thinks it was perfectly reasonable for it and Fannie Mae to ignore the law and to collect unlawful usury and not return it and the damages owed for the violations.

 The Consumer Law Center and its clients stand against the usury practices of Fannie Mae and its collector.  We do not believe it is right that Fannie Mae wishes to keep the usury collected and we will fight to hold it accountable in court and in the public space.  It simply is not a safe and sound practice for Fannie Mae to impose, charge, and collect usury in any form and especially since the American taxpayers had to bail it out in 2008 for other risky practices.  We should not repeat the lessons of the past and Fannie Mae should not gain a competitive advantage over honest mortgage market participants who do not churn unlawful usury for additional profits.