Could a Maryland retailer switch an existing revolving credit account to the new, less-regulated 1983 credit law just by giving customers notice?

Plain-English summary

Maryland's Commissioner of Consumer Credit asked the Attorney General several questions about a new 1983 law, Subtitle 9 of the Commercial Law Article, which let credit grantors offer revolving credit plans with fewer restrictions and higher permitted interest and fees than the older Retail Credit Accounts Law (RCAL) that had governed all open-end retail credit in Maryland. The Commissioner wanted to know whether a retailer already operating an RCAL account, one that allowed amendment by notice but did not require a signed acceptance, could convert that account into a Subtitle 9 plan, whether new Subtitle 9 charges could be applied to purchase balances that existed before such a conversion, whether new Subtitle 9 accounts had to be signed, and whether a membership fee could be charged before an account was ever used. The opinion concluded that conversion was possible if the accountholder received clear notice and assented through some overt act, most likely continued use of the account after the effective date of the change, and that a signature was not strictly required, drawing on contract-law principles treating open-end credit agreements as amendable or terminable-at-will contracts. On preexisting balances, the opinion was more cautious: it found the only legally certain approach was to keep applying the old RCAL terms to those balances until paid off, though it described two alternative theories, a "refinancing" theory and a two-step "amendment" theory, that credit grantors might use to apply new terms to old balances, while flagging real legal uncertainty in both. It also concluded new Subtitle 9 accounts had to be in writing but not necessarily signed, and that a membership or privilege fee could be charged before the account was used, so long as the accountholder had otherwise accepted the agreement and it provided for the fee.

Currency note

This opinion was issued in 1983. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Could a Maryland store convert an old-style credit account to the new 1983 credit law without getting customers to sign anything?
Yes, according to this opinion, so long as the accountholder received clear notice of the change and assented to it through some overt act, such as continuing to use the account after the change took effect. The opinion found no requirement that assent be embodied in a signed agreement, though it noted written assent remained the safest practice for a credit grantor wanting to avoid disputes over whether notice was actually received.

Could a retailer apply the new law's higher fees and interest to a customer's existing balance from before the conversion?
That was legally uncertain, the opinion concluded. It found the only approach free from real doubt was to keep applying the old Retail Credit Accounts Law terms to a preexisting balance until it was paid off. It described two alternative approaches, a "refinancing" theory and a two-step amendment theory, that credit grantors might use to apply new terms to old balances, but called both legally uncertain rather than clearly valid.

Did new accounts opened directly under the 1983 law have to be signed?
The opinion concluded a new Subtitle 9 account had to be in writing, since the statute was full of requirements that only applied "if the agreement so provides," but that it did not need to be signed by the borrower if acceptance could otherwise be shown, for example by the borrower's use of the account.

Could a credit card company charge a membership fee before a customer ever used the card?
Yes, according to the opinion, as long as the underlying agreement provided for the fee and the accountholder had otherwise evidenced acceptance of the agreement. The opinion found the fee was meant to compensate the credit grantor for establishing the account and extending the promise of credit, not for actual use.

Background and statutory framework

Maryland's Retail Credit Accounts Law (RCAL), codified in Title 12, Subtitle 5 of the Commercial Law Article, had governed all open-end retail credit accounts in the state until the General Assembly enacted Chapter 143 (Senate Bill 591), Laws of Maryland 1983, adding Subtitle 9, "Credit Grantor Revolving Credit Provisions," effective July 1, 1983. Subtitle 9 let credit grantors charge up to 24% annual interest and impose fees not calculated as interest (Md. Code, Com. Law §§12-903(a)(1), 12-905(a) and (e)), and Com. Law §12-914(a) gave a credit grantor the express option to offer a plan under Subtitle 9 or under whatever other law would otherwise apply. Because an existing RCAL account did not fit Subtitle 9's own definition of a "revolving credit plan" between a "credit grantor" and "borrower" (Com. Law §12-901(d)), and because RCAL itself was silent on amendment procedures, the opinion turned to general contract law, reviewing an Illinois appellate decision, Garber v. Harris Trust & Sav. Bank, that had upheld similar credit card amendments on alternative theories. The opinion adopted the theory that an open-end credit agreement is a binding, amendable, or terminable-at-will contract (citing Kahn v. Janowski and University National Bank v. Wolfe on contract modification by conduct), rather than the "multi-contract" theory some courts used, reasoning that RCAL's own formalities (Com. Law §12-503(e)(1)) and Maryland case law on unauthorized-card-use liability (citing Novack v. Cities Service Oil Co. and Read v. Gulf Oil Corp.) treated these agreements as genuine contracts rather than a bare, revocable offer.

On preexisting balances, the opinion identified tension between Com. Law §12-506.2, which gave RCAL accountholders an absolute right to repay existing balances at the rate in effect when the balance was incurred, and Com. Law §12-512's bar on any waiver of RCAL benefits or protections. It examined a "refinancing" theory drawn from a Minnesota case, Beck v. First National Bank of Minneapolis, and applied by the Garber court, under which a credit grantor's notice of new terms could be treated as a termination-and-reoffer that a customer accepted by continuing to borrow, but found this approach questionable in light of the Maryland Court of Appeals' recent decision in Attorney General v. Equitable Trust Co. cautioning against treating purchase transactions as loan transactions, and noted neither Beck nor Garber addressed a waiver provision like Com. Law §12-512. It also described a two-step "amendment theory" relying on the express statutory authority in Com. Law §12-912(c) to apply new terms to outstanding balances once a plan was genuinely governed by Subtitle 9, while cautioning that compressing the two steps into one notice risked being viewed as a disguised, prohibited waiver of RCAL rights. Finally, the opinion found Subtitle 9's numerous "if the agreement so provides" requirements (citing Com. Law §§12-901(h)(2), 12-903(a)(1) and (b), 12-904(a), 12-905(c), 12-906, 12-910, 12-911, and 12-912(c)) meant new accounts had to be in writing, but the statute's omission of RCAL's signature requirement (Com. Law §12-503(e)) meant other evidence of acceptance, including account use, could suffice (citing Chase Manhattan Bank v. Hobbs).

Citations

Statutes:

• Md. Code, Com. Law §12-103(a)(3) (cash advances under general interest and usury statute)
• Md. Code, Com. Law §12-501(c)(2)(i), (g)(1), (l) (RCAL definitions: "buyer," "financial institution," "retail credit account")
• Md. Code, Com. Law §12-503(a), (d), (e), (e)(1) (RCAL account establishment formalities)
• Md. Code, Com. Law §12-506(h)(1) (membership fee prohibited if finance charge imposed)
• Md. Code, Com. Law §12-506.2 (right to repay existing balance at original rate)
• Md. Code, Com. Law §12-512 (no waiver of RCAL benefits or protections)
• Md. Code, Com. Law §§12-513, 12-515 (RCAL violation penalties)
• Md. Code, Com. Law §12-901(a)(1), (b), (d), (h)(1), (h)(2) (Subtitle 9 definitions: "credit grantor," "borrower," "revolving credit plan")
• Md. Code, Com. Law §12-903(a)(1), (b), (d)(1)(i) (Subtitle 9 interest rate and billing provisions)
• Md. Code, Com. Law §12-904(a), §12-905(a), (a)(1)(i), (a)(2)(i), (c), (e) (Subtitle 9 fees and charges)
• Md. Code, Com. Law §12-906, §12-910, §12-911 (additional Subtitle 9 agreement-dependent provisions)
• Md. Code, Com. Law §12-912, §12-912(c) (amendment of Subtitle 9 plans, including as to existing balances)
• Md. Code, Com. Law §12-913 (Subtitle 9 plans exempt from other rate/charge limits)
• Md. Code, Com. Law §12-914(a), (c) (credit grantor's election of governing law; truth-in-lending disclosure)
• Md. Code, Com. Law §12-915(a) (licensure requirement tied to cash advances)
• Md. Code, Com. Law §§12-917, 12-918 (Subtitle 9 violation penalties)
• Md. Code, Com. Law §14-1305 (use of unsolicited credit card as acceptance)
• 15 U.S.C. §1643(a) (federal $50 cap on unauthorized credit card charges)
• Chapter 143 (Senate Bill 591), Laws of Maryland 1983 (enacted Subtitle 9)

Cases:

• Garber v. Harris Trust & Sav. Bank, 432 N.E.2d 1309 (Ill. App. 1982)
• City Stores Company v. Henderson, 156 S.E.2d 818 (Ga. Ct. App. 1967)
• Novack v. Cities Service Oil Co., 374 A.2d 89 (N.J. Super. Ct. Law Div. 1977), aff'd, 388 A.2d 264 (N.J. Super. Ct. App. Div. 1978)
• Blumenthal v. Heron, 261 Md. 234 (1971)
• Read v. Gulf Oil Corp., 150 S.E.2d 319 (Ga. Ct. App. 1966)
• Texaco, Inc. v. Goldstein, 229 N.Y.S.2d 51 (N.Y. Mun. Ct. 1962), aff'd 241 N.Y.S.2d 495 (N.Y. App. Div. 1963)
• Kahn v. Janowski, 191 Md. 279 (1948)
• University National Bank v. Wolfe, 279 Md. 512, 522 (1977)
• Thomas v. Hudson Motor Car Co., 226 Md. 456 (1961)
• Chase Manhattan Bank v. Hobbs, 405 N.Y.S.2d 967 (N.Y. Civ. Ct. 1979)
• Attorney General v. Equitable Trust Co., 294 Md. 385 (1982)
• Beck v. First National Bank of Minneapolis, 270 N.E.2d 281 (Minn. 1978)
• Schmidt v. Beneficial Finance Co., 285 Md. 148 (1979)

Source

• Landing page: https://oag.maryland.gov/resources-info/Pages/attorney-general%E2%80%99s-opinions.aspx
• Original PDF: https://oag.maryland.gov/resources-info/Documents/pdfs/Opinions/1983/Volume68_1983.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain, the linked PDF is authoritative.

CREDIT REGULATION

"Credit Grantor" Revolving Credit, Retail Credit Accounts Law, Change in Terms, Conversion of Retail Credit Account into Revolving Plan, Form of Accountholder Assent, Application of New Terms to Preexisting Balances.

June 30, 1983

The Honorable Alan T. Fell
Commissioner of Consumer Credit

You have requested our opinion on certain issues arising under the recently enacted Chapter 143 (Senate Bill 591), Laws of Maryland 1983. The new law, effective July 1, 1983, adds to Title 12 of the Commercial Law Article ("CL" Article) a new Subtitle 9, entitled "Credit Grantor Revolving Credit Provisions" ("Subtitle 9"). Specifically, you have asked four questions, restated as follows:

(1) How, if at all, may a seller currently offering an open-end credit plan governed by CL Title 12, Subtitle 5, the Maryland Retail Credit Accounts Law ("RCAL"), convert this plan into a revolving credit plan governed by Subtitle 9 as to all future transactions if the RCAL plan permits amendment by giving notice but does not require a signed acceptance by the buyer?

(2) If an open-end credit plan governed by RCAL is modified into a revolving credit plan governed by Subtitle 9, may new charges permitted by Subtitle 9 be applied to existing purchase balances incurred before the modification?

(3) Is a revolving credit plan that is established in the first instance under Subtitle 9 required to be in writing and signed by the borrower?

(4) May the charges permitted under Subtitle 9, such as a membership fee, be assessed to the borrower before the account is actually used?

For the reasons given below, we have concluded as follows:

(1) Existing RCAL plans that allow amendment may be modified to be governed under Subtitle 9 if the accountholder is given clear notice of, and assents to, the modification. The accountholder's assent must be evidenced by some overt act, but it need not necessarily be embodied in a signed agreement.

(2) The only treatment of existing RCAL purchase balances that is altogether free from legal doubt is the continued application of all existing terms of the RCAL plan to those balances until they are paid off. We recognize that there exist alternative approaches under which existing balances may be subjected to new terms. Although the legality of these approaches is not free from doubt, reasonable arguments can be advanced in support of them.

(3) A new account under Subtitle 9 must be in writing, but it need not be signed by the borrower if acceptance is otherwise evidenced.

(4) If the accountholder has evidenced acceptance of a new Subtitle 9 account, a membership fee or comparable privilege fee may be assessed, if the underlying agreement so provides, even before the account is actually used.

I
The New Subtitle 9

Subtitle 9 of Title 12 of the Commercial Law Article generally permits both lenders and sellers to offer credit with fewer restrictions than under RCAL. Among its various provisions, Subtitle 9 allows a credit grantor to charge up to 24% annual interest on unpaid balances [CL §12-903(a)(1)] and, with some limitations, allows a credit grantor to impose certain fees that are not calculated as interest [CL §12-905(a) and (e)].

II
Conversion of an Existing Account

A. Statutory Background

All open-end retail credit accounts in this State were previously governed by RCAL.1 With the enactment of Subtitle 9, open-end retail credit accounts may, as of July 1, 1983, be governed either by RCAL or Subtitle 9. The General Assembly's intent to provide credit grantors with a clear choice in selecting a lending statute is manifest in CL §12-914(a):

"Notwithstanding any other provisions of this title, a credit grantor may at its option offer a plan to any borrower either pursuant to this subtitle or as otherwise permitted by applicable law."2

1 RCAL applies to "two-party" and "three-party" open-end credit (as well as to "two-party" closed-end, unsecured credit). A "two-party" plan means one under which a seller maintains the retail credit account of the buyer. A "three-party" plan involves a buyer, a seller, and a "financial institution", which is defined in CL §12-501(g)(1) as a "person who enters into an agreement with a buyer by which the person agrees to extend credit to the buyer and apply it as directed by him by use of a credit card which the person issues to the buyer". Under some credit card plans, cash advances as well as purchase privileges are offered. These cash advances are presently governed under the provisions of CL §12-103(a)(3), part of the general interest and usury statute. See Attorney General v. Equitable Trust Co., 294 Md. 385 (1982). Your inquiry concerns only amendment of existing accounts under RCAL; for the most part, therefore, we have limited the scope of our response to purchase accounts.

2 Subtitle 9 contemplates an express election by the credit grantor of "its option", i.e., whether its plan is to be governed by RCAL or by Subtitle 9. Under CL §12-913, "[t]he provisions of any other law of this state limiting the rate or amount of interest ... or other charges which may be charged . . . may not apply to extensions of credit under a revolving credit plan under this subtitle". In light of this section, a credit grantor who expressly elects to establish a plan under Subtitle 9 will avoid application of rate or charge limitations elsewhere in the law, even if the Subtitle 9 plan otherwise might fit into the loan categories of that other law. Cf. Schmidt v. Beneficial Finance Co., 285 Md. 148 (1979).

Further support for this interpretation can be inferred from the underlying statutory scheme. In exchange for more liberal provisions permitting fees and charges impermissible under RCAL, the General Assembly has imposed harsher penalties for violations. Compare CL §§12-513 and 12-515 with CL §§12-917 and 12-918. If CL §12-914(a) were not interpreted to require an express, mutually exclusive election, a lender could conceivably insist that it retain the option of selecting the lesser penalty provisions of RCAL in the event of a violation of Subtitle 9. The General Assembly could not have intended so anomalous a result.

The issue presented by your first inquiry is whether this election can be made pursuant to an existing RCAL plan.

We note initially that this issue is not resolved by the express provisions of Subtitle 9. While CL §12-912 provides a statutory mechanism for amending a "revolving credit plan", an existing RCAL open-end retail credit account, by definition, is not a "revolving credit plan". In order to come within the Subtitle 9 definition of a "revolving credit plan", there must be an agreement between a "credit grantor" and a "borrower". See CL §12-901(d). "Credit grantor" and "borrower" are statutorily defined, respectively, as the person making and the person receiving an "extension of credit under this subtitle". CL §12-901(a)(1) and (b). Such extensions of credit obviously have not been made under existing accounts governed by RCAL.

Nor do the provisions of RCAL directly answer your inquiry. Although CL §12-503(a), (d), and (e) provide in detail the formalities to be followed when establishing an open-end account under RCAL, the statute is utterly silent on the procedures to be followed when the account is to be amended.

B. Contract Law

With no Maryland case law directly on point to guide us, we have carefully reviewed several cases in other jurisdictions resolving very similar issues.

The leading case is Garber v. Harris Trust & Sav. Bank, 432 N.E.2d 1309 (Ill. App. 1982). At issue in Garber were amendments to credit card agreements involving a "three-party" VISA card and "two-party" J. C. Penney Co. and Sears, Roebuck and Co. credit cards. The Illinois Appellate Court upheld these amendments on alternative theories of contract law.

After careful consideration, we have concluded that only one of these alternative theories, the theory that the existing open-end credit agreements identified in your inquiry constitute amendable contracts between the parties, can safely be relied on to permit conversion of a RCAL plan into a Subtitle 9 plan.

1. Multi-Contract Theory

In so concluding, we acknowledge that a different theory was said by the Garber court to be "the prevailing view in this country". 432 N.E.2d at 1312. Under that theory, the issuance of a credit card and the accompanying agreement constitute nothing more than a bare offer to extend a line of open-account credit that is unilateral in nature and supported by no consideration. 432 N.E.2d at 1311-12.3 See also City Stores Company v. Henderson, 156 S.E.2d 818 (Ga. Ct. App. 1967); Novack v. Cities Service Oil Co., 374 A.2d 89 (N.J. Super. Ct. Law Div. 1977), aff'd, 388 A.2d 264 (N.J. Super. Ct. App. Div. 1978). See generally 50 Am.Jur.2d Letters of Credit, and Credit Cards §38 (1970).

According to this theory, separate contracts are created each time the card is used pursuant to the terms of the cardholder agreement. The cardholder agreement simply remains a continuing offer to extend credit, the terms of which offer are incorporated into a separate contract whenever a sale is consummated by use of the card. As such, the agreement may be amended at any time as to future transactions.

While we do not altogether reject this analysis or foreclose its possible application under Maryland law, we are wary of the several problems that are presented by this approach.

First, the legislative intent in RCAL was clearly to regard these agreements as contracts. Several statutory provisions manifest this intent. The "agreement" must be in writing and either: "(i) [s]igned by the buyer; or (ii) [t]he seller or finan-

3 Garber intimates that this analysis would be different if a membership fee or similar charge were imposed when the account was established. 432 N.E.2d at 1313 n. 1. In Maryland, membership fees are prohibited under RCAL if a finance charge is imposed. CL §12-506(h)(1).

cial institution shall have made a reasonable attempt to obtain the signature of the buyer to the agreement". CL §12-503(e)(1). A "buyer" is defined as including "[a] person who enters into a prior agreement with a financial institution by which the financial institution agrees to pay the debts of the buyer as they accrue at various retail sellers designated by the financial institution, in consideration of which the buyer pays to the financial institution the cash sale price and the finance charge". CL §12-501(c)(2)(i). See also CL §12-501(g)(1) (defining "financial institution") and CL §12-501(l) (defining "retail credit account").

Case law concerning a cardholder's liability for unauthorized use of a credit card provides additional difficulties for this multi-contract analysis. It is standard practice in the industry to impose liability, by means of a "risk shifting clause", for unauthorized purchases if the card issuer is not promptly notified by the cardholder of the loss, theft, or unauthorized use of the card. See Spain, The Lost Credit Card: The Liabilities of the Parties, 30 Alb. L. Rev. 79 (1966). Such a clause appears to provide the consideration to support a credit card agreement that the court in Garber believed was absent.

"Consideration involves a detriment incurred by the promisee [cardholder] or a benefit received by the promisor [card issuer], at the promisor's request." Novack v. Cities Service Oil Co., 374 A.2d at 92. After a cardholder has evidenced acceptance of the agreement (either by signing the agreement, by using the card, or by doing some other act specified in the agreement as signifying acceptance), he or she becomes bound by a promise to notify the card issuer of loss, theft, or unauthorized use. Failure to do so can result in liability, currently limited under federal law to $50. 15 U.S.C. §1643(a). This liability has been imposed on the cardholder under traditional contract principles, on a showing that the cardholder had accepted the terms of the agreement, including its risk shifting clause. Read v. Gulf Oil Corp., 150 S.E.2d 319 (Ga. Ct. App. 1966); Texaco, Inc. v. Goldstein, 229 N.Y.S.2d 51 (N.Y. Mun. Ct. 1962), aff'd 241 N.Y.S.2d 495 (N.Y. App. Div. 1963).4

4 As a general rule, the adequacy or inadequacy of consideration is immaterial to the validity of the contract and will not be inquired into by the courts. Blumenthal v. Heron, 261 Md. 234 (1971).

Moreover, if credit card agreements are not deemed to be contracts on acceptance by the cardholder, the potential for deception is readily apparent. A card issuer theoretically would be free to promise the cardholder elaborate rights in a card agreement without fear of any liability in the event it defaulted. For example, an agreement could provide for a right of noncancellation except on written notification to the cardholder. Notwithstanding this promise, if the theory that the agreement did not constitute a binding contract were accepted, the card issuer would be free to cancel the card at any time without prior notification. Cf. Novack v. Cities Service Oil Co., 374 A.2d at 93.

For these reasons, it is preferable to consider the agreement, once accepted, to be a binding contract governing the relations of the parties. Therefore, we analyze your question by reference to the law governing amendment of contracts.

2. Amendable/Terminable-at-Will Contract Theory

In your inquiry, you refer to RCAL open-end credit agreements that specifically permit amendment. Under established contract law principles, provisions in an agreement are generally enforceable according to their terms. See Kahn v. Janowski, 191 Md. 279 (1948) (rescission clause). Accordingly, we find no common law impediment to the exercise of such a provision to modify the terms under which future transactions will take place, even to the extent of modifying the entire agreement so that it will be newly governed under the provisions of Subtitle 9.

General contract principles also provide authority for amending agreements that contain no specific provision for amendment. Open-end retail credit agreements normally contain clauses allowing either party to terminate the agreement. These agreements are contracts terminable at will and, as such, can be modified at any time as to future transactions as a condition for continuance. Garber, 432 N.E.2d at 1314.

Even in the absence of a specific termination clause, if the agreement is for an indefinite duration, it is in essence terminable at will with the same resulting power to modify. Garber, 432 N.E.2d at 1313-14. Legal consideration supporting such

modifications is provided by the promise to continue to extend credit for the accountholder under new terms. Garber, 432 N.E.2d at 1315.

C. Mechanics of Amending

The remaining portion of your first inquiry is directed at the mechanics of accomplishing the amendment process. You have postulated an existing RCAL agreement that requires notice of amendment but not a signed acceptance.5 Unless the agreement provides otherwise, use of the account after the effective date of the modification specified in a properly worded notice would constitute acceptance of the new terms under Subtitle 9.6 It is well-settled in Maryland that conduct of the parties to a contract may be evidence of a subsequent modification of that contract. See University National Bank v. Wolfe, 279 Md. 512, 522 (1977).7

In other jurisdictions, use of a card has been viewed as signifying acceptance of a binding agreement. For example, in Chase Manhattan Bank v. Hobbs, 405 N.Y.S.2d 967 (N.Y. Civ.

5 We assume that the agreement specifies the action of the accountholder that will signify assent to the modification, for example, use of the card after a specified date. Absent such a specification in the agreement between the parties, prudence would suggest that the modification process follow the same formalities required by CL §12-503(e) for establishing a new account. We observe that, even if the agreement provides otherwise, written assent by the accountholder remains the preferable means for a credit grantor to achieve the modifications contemplated by your inquiry. Written assent alleviates potentially serious questions of whether the accountholder received actual notice of the modification. Cf. Thomas v. Hudson Motor Car Co., 226 Md. 456 (1961).

6 As discussed in Part IV below, acceptance of a new plan under Subtitle 9 may similarly be evidenced by use of the account.

7 We note that, under other provisions of Maryland law, use of an unsolicited credit card can constitute acceptance of the card and enable the card issuer to shift the assumption of risk for loss, theft, or unauthorized use of the card from the card issuer to the cardholder. See CL §14-1305. The sending of unsolicited cards is generally prohibited under RCAL. See CL §12-503(a).

Ct. 1979), a written credit card agreement provided that it would become effective if the enclosed credit card were used, as evidenced by the cardholder's signature on a sales slip. The defendant later used the card. In finding him liable for the charges and attorneys' fees provided for under the agreement, the court stated:

"Unquestionably, the acceptance of a paper which purports to be a contract may be indicated by conduct or acquiescence [citations omitted]. Accordingly, the defendant's use of the credit cards issued to him by the plaintiff is tantamount to conduct evincing an acceptance of the accompanying retail installment credit agreement and all of the terms contained therein." 405 N.Y.S.2d at 970.

III
Preexisting Purchase Balances

Your second inquiry concerns whether charges permitted after the agreement has been modified to bring it under Subtitle 9 can be imposed on purchase balances in existence before the modification. In the absence of a specific factual situation in which to consider this question, we can reach but one firm conclusion: the only treatment of such existing balances that is altogether free from doubt is to treat these balances as residual extensions of credit governed by RCAL.8 However, reasonable, albeit legally uncertain, arguments can be advanced to support other approaches.

Our caution on the treatment of existing balances is caused by the interplay of two provisions of RCAL. Under CL §12-506.2, a RCAL accountholder has an absolute right to pay off existing purchase balances at the rate of finance charge ap-

8 The necessary statutory authority for this approach appears to be contained in CL §12-914(a), quoted in text accompanying note 2 above.

plicable when the purchase was made. The application of an increased rate to existing balances is expressly prohibited.9

In addition, §12-512 provides:

"No act, agreement, or statement of a buyer may constitute a valid waiver of any benefit or protection provided to him under this subtitle."

We believe that this section presents no difficulty when an agreement is modified as to future transactions.10 Nevertheless, when read in conjunction with CL §12-506.2 and its prohibitions governing existing balances, CL §12-512 presents a very different issue with respect to transactions that have already taken place.11

9 CL §12-506.2 provides:

"Changes in the rate applicable to an open-end account, including a credit card plan which provides for sales, cash advances, or both, are limited as follows:

(1) Any balance existing before July 1, 1982 is to be repaid at the then applicable rate of interest or finance charge regardless of any subsequent increase in the rate applicable to the account.

(2) If the rate applicable to any balance for which the borrower or buyer becomes obligated between July 1, 1982 and July 1, 1985 is increased, the borrower or buyer may repay the existing balance at the rate in effect, prior to the time the increase becomes effective. If the borrower or buyer increases the balance of his account by making purchases or requesting cash advances, the increased rate shall apply only to the portion of the balance incurred after the rate increases."

10 We do not interpret the words "benefit" or "protection" in CL §12-512 to contemplate, much less preclude, an agreement between the parties to be governed by an alternative lending statute for future transactions. When enacted in 1967, CL §12-512 evidenced a clear intent that all open-end credit transactions could only be conducted in accordance with RCAL. In 1983, the General Assembly's enactment of Subtitle 9 evidenced with equal clarity that this was no longer the case. It would be sophistry to conclude that CL §12-512 was intended to prevent an election, first becoming available 15 years after its enactment, to govern future transactions.

11 A credit grantor that foregoes any effort to change the terms applicable to existing balances may certainly seek to compensate itself through a membership or other privilege fee permitted by CL §12-905(a)(1)(i) and (a)(2)(i). See Part V below.

A. Refinancing Theory

In Garber, the application of new terms to existing purchase balances was upheld with no analysis. Garber simply relied on a concept of refinancing announced in Beck v. First National Bank of Minneapolis, 270 N.E.2d 281 (Minn. 1978).

The plaintiff in Beck contested the imposition of higher interest charges on his "checking plus" agreement, even though he continued to use the plan after the effective date of the higher interest rate amendment. In finding the higher rate applicable to both new cash advances and past balances, the court stated:

"The Bank's September notice to plaintiff was in effect a notice of termination of the checking-plus agreement coupled with an offer to continue the present service at a new rate .... By writing new overdrafts, plaintiff accepted this offer and thus refinanced his existing balance under the new arrangement and the new law." 270 N.E.2d at 287.

This approach might be found to be acceptable under Maryland law if the RCAL agreement between a cardholder and a credit grantor authorizes cash advances and permits termination by the credit grantor at any time and if the cardholder were provided with a clear explanation of his or her options. These options are: (i) to maintain the RCAL balance under existing terms, but with no future credit privileges under either RCAL or Subtitle 9; or (ii) to agree to close out the RCAL balance with funds advanced by the credit grantor under Subtitle 9, thereby accepting both credit privileges and payment obligations under Subtitle 9.12 This approach arguably

12 It is not clear how a retailer that does not make cash advances, indeed, that is not subject to the licensure requirement of CL §12-915(a) precisely because it does not make cash advances, can achieve a comparable "refinancing". Moreover, if a retailer that charges a fee under CL §12-905(a)(1) does purport to have "refinanced" the RCAL balance by means of a cardholder's Subtitle 9 "purchase", it will have created an unintended "float" on the balance that had been in the RCAL account. Under Subtitle 9, interest or fi-

does not violate CL §12-512, because, even if the cardholder agrees to the refinancing, he or she will not have agreed to a "waiver of any benefit or protection provided . . . under this subtitle [i.e., RCAL]".13

However, we cannot unequivocally approve this approach as a basis for resolving your inquiry. Several aspects of it remain problematic, particularly as applied to retailers who do not make cash advances.14

In our view, the "refinancing" of an existing purchase balance in this manner is a somewhat unorthodox concept that should receive a more considered analysis than its simple formulation as to bank lenders in Beck and its rote application to retailers as well in Garber. Particularly in light of the Court of Appeals' recent decision in Attorney General v. Equitable Trust Co., 294 Md. 385 (1982), analogies and theories that transmute purchase transactions into loan transactions are particularly suspect. Finally, there is no indication in either the Beck or the Garber decisions that the statutory schemes at issue in those cases included any analogue to CL §12-512, the express waiver prohibition in RCAL.

B. Amendment Theory

An alternative approach would rely on the express statutory authority in CL §12-912(c) to impose new terms on existing

nance charges may be collected only "on the outstanding unpaid indebtedness in the borrower's account under the [Subtitle 9] plan". CL §12-903(a)(1). "If the outstanding balance ... is paid in full within 25 days after the end of a billing period, a finance charge or interest may not be imposed . . . with respect to such balance for that billing period." CL §12-903(d)(1)(i). Because the prior RCAL balance will not have been "unpaid" under the Subtitle 9 plan until 25 days after the end of the billing period in which the amount is posted, no interest can be charged for that period.

13 RCAL "benefit[s] or protection[s]" do not include future credit privileges under a terminable RCAL account or, surely, future credit privileges under a Subtitle 9 account.

14 See note 12 above.

balances incurred under a Subtitle 9 plan.15 Conceptually, this approach involves two steps, although both steps could arguably be initiated and accomplished through one notice and one acceptance.

In the first step, the existing agreement would be amended so that all extensions of credit, including the continuing extension of existing balances, would be governed by Subtitle 9, but no change would be made in existing terms. At this juncture, the parties would have simply agreed to be governed by Subtitle 9 rather than by RCAL, but there would be no loss of any "benefit" or "protection" afforded under RCAL.

The second step of this approach would be an amendment to what has become a plan that, by agreement of the parties, is governed by Subtitle 9, not RCAL. This second amendment would impose new terms under the express statutory authority contained in CL §12-912.

We must add, however, that this two-step approach offers no guaranty that the difficulties presented by RCAL when imposing new terms on existing balances can be overcome. Especially if the two, theoretically distinct, steps are compressed into a single notice, the entire process might be viewed by the courts as simply a roundabout method of trying to accomplish a waiver of rights under RCAL that is prohibited by CL §12-512.

15 CL §12-912(c) provides: "Except as limited by subsection (b)(3) of this section, if the terms of the agreement governing the plan, as originally drawn or as amended provide, any amendment may, on and after the date on which it becomes effective as to a particular borrower, apply to all then outstanding unpaid indebtedness in the borrower's account under the plan, including any indebtedness which shall have arisen out of purchases made or loans obtained prior to the effective date of the amendment."

This section alone, however, provides no authority to apply new terms to an existing balance incurred under RCAL, because by definition that "outstanding unpaid indebtedness" is not composed of purchases charged to the borrower's account "under the [Subtitle 9] plan". See CL §12-901(h)(1).

C. Conclusion

In short, we believe that the only legally certain treatment of existing RCAL balances is to maintain all current RCAL terms with respect to those balances.

Given the largely deregulatory nature of Chapter 143 (Senate Bill 591), however, we suspect that the General Assembly assumed that, under Subtitle 9 and related general principles of law, credit grantors would be allowed to impose new terms on preexisting RCAL plan balances, if, of course, the cardholder uses the card after notice of the amendment or otherwise assents to the change. While such a result is not altogether free from doubt, legally defensible theories can be advanced to support that conclusion.

IV
Agreements Establishing Subtitle 9 Plans

In your third inquiry you ask if new plans established under Subtitle 9 are required to be in writing and to be signed by the borrower. We think it abundantly clear from the statute that the General Assembly intended these agreements to be in writing, but that they need not necessarily be signed by the borrower.

Subtitle 9 is replete with requirements that a credit grantor cannot take advantage of its benefits, such as fees and other charges, unless an "agreement" so provides. See, e.g., CL §§12-901(h)(2); 12-903(a)(1); 12-903(b); 12-904(a); 12-905(c); 12-906; 12-910; 12-911; and 12-912(c). Moreover, Subtitle 9 imposes disclosure requirements that would be impossible to comply with unless the agreement were in writing. See CL §12-903(a)(1) (requiring that the rate of interest chargeable must be expressed in the agreement as a simple interest rate) and §12-914(c) (incorporating truth-in-lending disclosure requirements).

However, the statutory references to such an agreement would not appear to require the signature of the borrower as the only means of acceptance. When it enacted Subtitle 9, the General Assembly appears to have intended to deregulate the granting of open-end credit in part by simplifying previous

statutory requirements. Conspicuously absent from Subtitle 9 is the current RCAL requirement that a seller have an agreement "[s]igned by the buyer" or have made "a reasonable attempt to obtain the signature of the buyer". Cf. CL §12-503(e). By omitting such formalities for the establishment of a Subtitle 9 agreement, the General Assembly evidently intended that use of the account or other evidence of acceptance, as discussed in Part II C above, could be sufficient to constitute a binding agreement under Subtitle 9. See Chase Manhattan Bank v. Hobbs, 405 N.Y.S.2d at 970.16

V
Assessment of Fees

Your final inquiry concerns whether a fee, such as a membership fee, can be assessed under Subtitle 9 prior to the use of the account.17

Such fees are defined in CL §12-905(a)(1)(i) and (2)(i) as a "charge in any amount the agreement provides for the privileges made available to the consumer borrower under the plan". The General Assembly clearly intended this fee to compensate the credit grantor for establishing the account and agreeing to extend credit in accordance with an agreement, without any requirement that the account actually be used. Absent the borrower's use, however, liability for the fee would not attach unless the credit grantor could otherwise establish with sufficient evidence that the borrower had accepted the agreement. Of course, the fee could not be charged unless the underlying agreement so provides. See CL §12-905(a)(1)(i) and (2)(i).

16 In this regard, we do not interpret Subtitle 9 as necessarily requiring a sales slip signed by the borrower. We believe that any clear evidence of use of the card by the borrower (for example, an authorized purchase from a catalogue by mail or telephone) could constitute sufficient acceptance of the agreement to bind the parties to its terms.

17 Our response assumes an account newly established under Subtitle 9 or an existing account properly amended to be governed under Subtitle 9.

VI
Conclusion

For the reasons stated above, it is our opinion that:

(1) Existing RCAL plans that allow amendment may be modified to be governed under Subtitle 9 if the accountholder is given clear notice of, and assents to, the modification. The accountholder's assent must be evidenced by some overt act, but it need not necessarily be embodied in a signed agreement.

(2) The only treatment of existing RCAL purchase balances that is altogether free from legal doubt is the continued application of all existing terms of the RCAL plan to those balances until they are paid off. We recognize that there exist alternative approaches under which existing balances may be subjected to new terms. Although the legality of these approaches is not free from doubt, reasonable arguments can be advanced in support of them.

(3) A new account under Subtitle 9 must be in writing, but it need not be signed by the borrower if acceptance is otherwise evidenced.

(4) If the accountholder has evidenced acceptance of a new Subtitle 9 account, a membership fee or comparable privilege fee may be assessed, if the underlying agreement so provides, even before the account is actually used.

Stephen H. Sachs, Attorney General
Francis X. Pugh, Assistant Attorney General
Robert deV. Frierson, Assistant Attorney General
Jack Schwartz, Assistant Counsel, Opinions and Advice
Avery Aisenstark, Chief Counsel, Opinions and Advice