98 [79 Op. Att’y

CREDIT REGULATION

HOME IMPROVEMENT CONTRACTS ) LICENSING REQUIREMENTS

January 7, 1994

Mr. Joseph E. Owens

Deputy Secretary of Licensing & Regulation

You have requested our opinion whether a home improvement

contractor is required to obtain an installment loan license as a

prerequisite to offering its customers financing for home

improvement projects. You have also asked whether there are

circumstances under which a home improvement contractor might

need a mortgage lender’s license if the offered financing is secured

by a lien on the homeowner’s residence.

The answers to these questions cannot be simply stated,

because of the varied features of transactions that may be offered

under several credit statutes; these transactions, in turn, significantly

affect the analysis whether certain licensing provisions apply. In

brief, our conclusions are as follows:

1. If a home improvement contractor finances its sale of

goods and services to a homeowner and that financing is secured by

a lien on the homeowner’s residence, the contractor is required to

obtain a mortgage lender’s license unless the financing contract is

assigned without recourse to a mortgage lender licensee (or a person

exempt from mortgage lender licensing) within 30 days after the

contract is completed.

2. If a home improvement contractor extends credit to

customers under Title 12, Subtitles 9 or 10 of the Commercial Law

(“CL”) Article, Maryland Code (whether secured in any way or

unsecured) and also extends any credit secured by a secondary lien

on residential real property in that or another transaction, the

contractor probably is required to obtain an installment loan license.

This conclusion, however, cannot be free from doubt given a glaring

inconsistency in the relevant statutory language, and it appears that

many contractors may not have obtained such a license because of
Gen. 98] 99

 “Home improvement” and “home improvement contract” are 1

defined in BR §8-101. 

The down payment limitation (one-third of the purchase price) is

2

(continued...)

a good-faith belief that they were not required to do so. This matter

deserves prompt review by the General Assembly.

3. If a home improvement contractor extends credit to

customers under any subtitle of CL Title 12 other than Subtitles 9 or

10 or under the common law “time-price differential” doctrine, the

contractor is not required to obtain an installment loan license. 

I

Factual Background

For purposes of this analysis, the following will serve as a

factual summary of the manner in which home improvement

contractors conduct their business and undertake to obtain financing

of their contracts for homeowners who are their customers.

Although this summary reflects what we understand is the business

practice of most home improvement contractors, there may be

variations in terms and procedures from contractor to contractor;

these variations could result in different conclusions than those

reached in this opinion.

Home improvement contractors (hereafter referred to as

“Contractors”) typically sell both goods and services ) that is, the

materials that will be added or affixed to the homeowner’s premises,

together with the labor and expertise to assemble or install those

goods. These activities are regulated by the Maryland Home

Improvement Commission (“MHIC”) under Title 8 of the Business

Regulations (BR”) Article, Maryland Code. The MHIC has issued 1

regulations that govern most aspects of the business, including the

contract between the Contractor and the homeowner and related

terms of the contractual relationship. Except for a requirement that

the contractor may not require a down payment that exceeds one

third of the total contract price, no provision of the statute or

regulations that the MHIC enforces purport to govern any of the

financing aspects of a home improvement contract. 

2
100 [79 Op. Att’y

 (...continued) 2

set out in BR §8-617.

Generally speaking, Contractors assist their customers with the

financing aspect of a home improvement project in either of two

ways. First, the Contractor may itself extend credit to the

homeowner. This method is called “indirect financing.” This term

reflects the fact that most home improvement contractors do not hold

the deferred payment contracts, but rather sell or assign them to third

parties in exchange for cash. The ultimate creditor (the assignee of

the paper) is then considered an “indirect” extender of the credit, via

the Contractor. 

Second, the Contractor can identify for the homeowner a third

party willing to make a loan in the amount of the contract price.

This method is called “direct financing.” The Contractor may assist

the homeowner in applying for the credit and even act as a liaison

between borrower and lender. In direct financing situations,

however, the contractor generally does not receive any additional

compensation attributable to the referral of the customer to the

lender for a direct loan.

These circumstances have, over time, resulted in the

development of ongoing business relationships between Contractors

and third party sources of funding such as depository financial

institutions (e.g., banks, and savings and loan associations, also

known as savings banks) and other similar sources of funding

(hereafter referred to as “financing entities”). In fact, a financing

entity typically specifies the manner in which the financing aspect of

the transaction must be conducted and supplies the written

documents to ensure that the finished financing contract complies

with those requirements.

Over the years, Contractors and their financing entities have

developed a wide variety of contract terms and forms to reflect those

provisions. These variousterms dictate which of the several subtitles

under CL Title 12 apply to the transaction and, accordingly, what

type of license, if any, must be obtained from the Commissioner of

Consumer Credit. Of special pertinence in this regard are the type of

property in which a security interest is taken to secure the loan and

whether the loan is intended to be made under CL Title 12, Subtitle

10, or pursuant to some other subtitle of CL Title 12. Generally
Gen. 98] 101

 The definition of “mortgage lender” set forth in FI §11-501(j) 3

includes “any person who ... [f]or a fee or other valuable consideration,

whether received directly or indirectly, aids or assists any person in

procuring a mortgage loan ....”

speaking, the loan may be unsecured; secured by the “goods”

supplied by the contractor, which are to be used in the home

improvement work to be done under the contract; secured by a lien

on the homeowner’s residence; or secured by both types of

collateral. 

II

Direct Financing

If a financing entity makes a loan of money directly to the

homeowner, the Contractor need not obtain either an installment

loan license or a mortgage lender’s license. The only possible

licensing issue here would arise in the event that the Contractor

received compensation, either from the borrower or the financing

entity, for referring the loan application to the lender or performing

other services directly connected with the financing aspect of the

transaction, as opposed to the home improvement itself. If such

compensation is received in a loan transaction secured by a lien on

the residential real property, then the Contractor would be acting as

a mortgage broker and would be subject to licensure under the

Maryland Mortgage Lender Law (“MMLL”), Title 11, Subtitle 5 of

the Financial Institutions (“FI”) Article, Maryland Code. Similarly, 3

if the Contractor received compensation for referral of an unsecured

loan or for a loan secured by collateral other than real property, the

Contractor would fall within the definition of a “credit services

business” set forth at CL §14-1901 and would be required to obtain

an installment loan license. See CL §14-1908. The typical direct

financing transaction, however, does not involve any compensation

to the Contractor for referring the customer to the financing entity.

Whether the loan is really made “directly” to the borrower may

depend on the facts of the particular situation. For example, the

contract for the work to be done and the financing agreement may

become intermingled if the loan transaction and the home

improvement provisions are evidenced by the same document. The

situation is particularly problematic when the contract is signed by

the homeowner before the work under the home improvement
102 [79 Op. Att’y

contract begins and is not transferred to the financing entity until

after completion. A conclusion that a transaction is truly “direct”

financing can only be reached after an assessment of the particular

factual circumstances. If a loan is truly “direct,” however, then the

Contractor does not need an installment loan license or an MMLL

license.

III

Indirect Financing

A. Mortgage Lender License

When a contractor enters into a financing plan with a

homeowner and the plan is secured by the customer’s residence, the

Contractor is engaging in a transaction that ordinarily would bring

the Contractor under the licensing requirement of the MMLL. See

FI §§11-501 and 11-504. However, FI §502(a)(10) provides that the

licensing requirement does not apply to a “home improvement

contractor licensed under Article 56 of the Code who assigns a

mortgage loan without recourse within 30 days after completion of

the contract to a person licensed under this subtitle or to an

institution that is exempt from this subtitle under paragraphs (1) and

(2) of this subsection.” 

While there may be factual issues about when a particular

contract has been “completed,” the language in this subsection

would seem to settle the question whether a mortgage lender’s

license is required if the contract is transferred “without recourse,”

so long as the transferee is either an MMLL licensee or an institution

listed as exempt. Because the MMLL license requirement is

triggered by the type of collateral securing the credit (that is, a lien

on residential real property), rather than where the credit finds a

home among the various subtitles of CL Title 12, this conclusion

applies to any indirect credit secured by a first or a second lien on

residential real property. 

B. Installment Loan License

1. Time-Price v. Loan of Money

The question of when an installment loan license is needed in

indirect financing situations must begin with an inquiry into the

difference between a loan of money and what is known as a “timeprice differential.” The courts have accepted the principle that when
Gen. 98] 103

the purchase price in a sale transaction is deferred over time, even if

the total payments exceed the price of the item or service if it were

bought outright at the time that the sale is initiated, the difference in

the price is not considered “interest” because the transaction is not

considered a loan. Financial Credit Corp. v. Williams, 246 Md. 575,

229 A.2d 712 (1967); Rothman v. Silver, 245 Md. 292, 226 A.2d 308

(1967); Falcone v. Palmer Ford, Inc., 242 Md. 487, 219 A.2d 808

(1966). Therefore, the courts have held that the usury laws do not

apply to these “time-price” transactions: 

[A] bona fide sale of personalty at a deferred

purchase price greater than the cash price is

not subject to the usury laws, even though the

price on credit is arrived at by adding a per

cent to the cash price in excess of the legal

rate of interest or is stated as a rate of interest

(which would be usurious if the transaction

were a loan) on a note given for all or part of

the purchase price.... The reasons given are

that a sale of property is not a loan or

forbearance of money and the owner of

property has a right to name the price at which

he will sell and may offer his property at one

price for cash or a much higher price on credit

and the advanced price will not constitute

usury ....

Rothman v. Silver, 245 Md. at 298-99 (citations omitted).

Indirect financing by a home improvement contractor falls

squarely within this “time-price” doctrine and is therefore not

considered to be a loan of money, regardless of whether there is an

attendant grant of a security interest in real or personal property.

Moreover, the assignment or transfer to a financing entity after the

credit has been extended does not affect this treatment. The credit

continues in character as originally made. This result has

implications for the application of various statutory credit

regulations to these transactions, and hence the application of the

licensing requirements under the Installment Loan Law (“ILL”), FI

Title 11, Subtitle 3. The type of property taken as security also

matters in determining which subtitles of CL Title 12 apply. 
104 [79 Op. Att’y

 “Revolving” credit is typified by a bank-issued credit card with a 4

maximum credit line. The balance may increase and decrease from time

to time depending upon the cardholder’s use and repayment. In contrast,

“closed-end” credit envisions a single extension of credit in a fixed

amount that is repaid either in a lump sum or periodic payments. In

closed-end credit, repayments do not enable the debtor to access any

further advances beyond the initial credit extended.

(continued...)

2. The ILL Licensing Statute

FI §11-302 prohibits a person from engaging in the business of

making “installment loans,” or making more than five such loans per

year, unless the person is licensed or is exempt from licensure. That

same section then goes on to define “installment loan” as “a loan or

extension of credit made for consideration under §§12-103(a)(3) or

(c), Title 12, Subtitle 9, or Title 12, Subtitle 10 of the Commercial

Law Article.” The question whether a Contractor needs an

installment loan license will first depend upon whether the indirect

extension of credit is made under any of these listed provisions of

the Commercial Law Article. 

a. Title 12, Subtitle 1

Because of the time-price differential doctrine, we can very

quickly eliminate CL §12-103(a)(3) and (c) as a basis for licensure.

These provisions, by their terms, govern loans of money, not timeprice sales. The definitions governing the entirety of Title 12,

Subtitle 1 make that conclusion unquestionable: A “borrower” is “a

person who borrows money under this subtitle”; a “lender” is “a

person who makes a loan under this subtitle”; and “usury” is “the

charging of interest by a lender in an amount which is greater than

that allowed by this subtitle.” CL §12-101(b), (f), and (k) (emphasis

supplied). 

An indirect extension of credit by a Contractor is not a loan of

money and therefore is not made under CL §12-103(a)(3) or (c). 

b. CL Title 12, Subtitles 9 and 10

Contractors are eligible to extend credit under CL Title 12,

Subtitle 9 (for revolving credit) and CL Title 12, Subtitle 10 (for

closed-end credit). CL §12-1001(b) includes within the definition 4
Gen. 98] 105

 (...continued) 4

Contractors do not offer revolving credit under Subtitle 9 on an

indirect basis. Therefore, the ensuing analysis talks only about Subtitle

10. However, it is possible for revolving credit to be extended either in

the form of a home equity line of credit or an unsecured line of credit,

which the financing entity takes by assignment after the contract is

completed. The licensing analysis for this possibility is largely the same

as that presented with reference to Subtitle 10. There are, however, some

differences with respect to home-secured revolving credit that will not be

discussed in this opinion because, as far as we are aware, no home

improvement contractors currently offer even direct financing on a

revolving basis.

 This provision was enacted in Chapter 404 (House Bill 424) of the 5

Laws of Maryland 1993, a legislative response to the decision of the Court

of Appeals in Biggus v. Ford Motor Credit Corp., 328 Md. 188, 613 A.2d

986 (1992).

of “credit grantor” the term “retailer.” While “retailer” is not

defined in the subtitle, it is highly likely that the term would be held

by the courts to include any seller of goods and services to the

consuming public, such as a home improvement contractor. See

Craftsman Painters & Decorators v. Carpenter, 111 Colo. 1, 137

P.2d 414 (1943); Capitol Building Co. v. Langton, 101 R.I. 131, 221

A.2d 99 (1966). Accordingly, CL Subtitle 10 is clearly available for

use by a Contractor to finance the sale of goods and services. See

CL §12-1002.

As a result of an amendment effective October 1, 1993, if the

Contractor desires to extend credit under Subtitle 10, the documents

evidencing the extension of credit must contain a written election of

that subtitle. CL §12-1013.1. If they do not, the provisions of 5

Subtitle 10 will not apply, leaving the Contractor to contend with

whatever other credit laws enacted prior to Subtitle 10 may apply to

the type of credit being extended. 

If the Contractor elects to extend credit under Subtitle 10, then

the issue of licensing under the ILL must be addressed. While the

definition of “installment loan” in FI §11-302 clearly includes any

credit extended under Subtitle 10, there is an exemption from the

license requirement that may apply to some Contractors. FI §11-

301(b)(6) provides as follows: 
106 [79 Op. Att’y

(b) The licensing provisions of this

subtitle do not apply to any of the following

persons, if organized under the laws of this

State or otherwise qualified to do business in

this State:

. . .

(6) A seller of goods or services or both

not engaged in:

(i) Making loans;

(ii) Offering extensions of credit

secured by secondary liens on residential real

property; or

(iii) Acting as a credit services

business as defined under Title 14, Subtitle 19

of the Commercial Law Article.

Under this provision of the licensing statute, therefore, a Contractor

is exempt from the ILL license (and thus may make loans under

Subtitle 10 without obtaining the license) unless the Contractor also

makes loans, extends credit secured by second liens on residential

property, or acts as a credit services business.

As we stated at the outset, Contractors typically do not make

loans of money, nor are they engaged in activities which would bring

them within the definition of “credit services business.” See CL

§14-1901(b). A significant number of Contractors do extend credit

secured by secondary liens on residential real property, however. It

appears from the language of FI §11-301(b)(6) that, if a contractor

does any second-lien secured indirect financing, then this exemption

from licensure does not apply.

While the limits of the exemption in the ILL provisions appear

clear, CL §12-1015(a) muddies the waters considerably. This

section provides as follows: 

(a) Except for a seller of goods or services

not engaged in making cash advances to be

paid to or for the account of a borrower, a

credit grantor making a loan or extension of

credit under this subtitle is subject to the

licensing, investigatory, enforcement and
Gen. 98] 107

penalty provisions of Title 11, Subtitle 3 of the

Financial Institutions Article. 

In this section, basically the same licensing exemption exists for

sellers of goods or services found in the ILL. Unlike the ILL

exemption provision, however, the exemption in CL §12-1015(a)

does apply to a seller who also extends credit secured by a second

lien on residential real property. Thus, a Contractor who secures

indirect financing with a second lien on the customer’s home

appears under CL §12-1015 to be exempt from the ILL licensing

provisions, while FI §11-301(b)(6) unequivocally requires the

Contractor to obtain a license. In this respect, the two statutes are in

direct, irreconcilable conflict. 

This is not a situation in which the particular credit grantor

provision in the Commercial Law Article is silent about an

exemption from the licensing provision, while the ILL specifically

supplies those exemptions (for example, the exemption of banks and

other depository institutions). In that situation, the statutes can be

harmonized. CL §12-1015 makes no mention of banks or other

institutions but simply makes all “credit grantors” (defined in §12-

1001(b) to include such institutions) “subject” to the provisions of

the ILL. Therefore, the exemptions in the licensing statute are not

mentioned, let alone contradicted, in the credit statute. In marked

contrast, both statutes address the exemption for sellers in two

different, directly conflicting ways.

We are not without guidance in attempting to resolve conflicts

of this kind. First, we are to presume that the General Assembly

intended all of its enactments to operate together as a consistent and

harmonious body of law. Farmers & Merchants Bank v.

Schlossberg, 306 Md. 48, 61, 507 A.2d 172 (1986). Repeal by

implication is not favored. State v. Harris, 327 Md. 32, 607 A.2d

552 (1992). If two statutes are in irreconcilable conflict, however,

“the same presumed legislative intent requires that the statute whose

relevant substantive provisions were enacted most recently be held

to have repealed by implication any conflicting provisions of the

earlier statute.” Farmers & Merchants Bank v. Schlossberg, 306

Md. at 61. See also Plaza Corp. v. Alban Tractor Co., 219 Md. 570,

151 A.2d 170 (1959).
108 [79 Op. Att’y

Although the starting place for interpreting a statute is the

language used by the General Assembly read in a normal way, “the

general purpose [of a statute] is a more important aid to the meaning

than any rule which grammar or logic may lay down.” Kaczorowski

v. City of Baltimore, 309 Md. 505, 525, 525 A.2d 628 (1987).

Sometimes that purpose can be discerned through a review of the

history when the statutory text itself fails to convey the purpose

adequately. 309 Md. at 515. 

CL Subtitle 10 (together with CL Subtitle 9) was enacted as

Chapter 143 (Senate Bill 591) of the Laws of Maryland 1983. The

legislative history indicates that the bill was originally proposed as

a response to a more permissive regulatory environment in Delaware

and other contiguous states, which had helped these states draw jobs

in the financial industry away from Maryland. 

The initial proposals would have created new lending statutes

applicable to banks only. As the bill took shape, however, most

other businesses engaged either in lending or extending credit to

facilitate sales saw the advantages of the new lending subtitles.

These other lenders persuaded the Legislature to include them in the

definition of “credit grantor,” thus making them eligible to use the

new law.

As non-depository lenders were made eligible to use what was

to become CL Subtitles 9 and 10, a provision was included in Senate

Bill 591 requiring certain credit grantors to obtain a license under the

already existing ILL provisions. Several amendments later, the

provisions regarding licensing in CL Subtitle 10, which ultimately

were enacted as CL §12-1015, exempted certain sellers of goods and

services and read as follows: 

(a) Except for a seller of goods and

services not engaged in making cash advances

to be paid to or for the account of a borrower

or offering extensions of credit secured by a

secondary lien on residential real property, a

credit grantor making a loan or extension of

credit under this subtitle not secured by a

secondary lien on residential real property is

subject to the licensing, investigatory,

enforcement and penalty provisions of Title

11, Subtitle 3 of the Financial Institutions

Article.
Gen. 98] 109

(b) In addition to the license required by

subsection (a) of this section, a credit grantor

making a loan or extension of credit under this

subtitle secured by a secondary lien on

residential real property is subject to the

licensing, investigatory, enforcement and

penalty provisions of Title 12, Subtitle 3 of the

Financial Institutions Article.

(Emphasis supplied.) The 1983 version of CL §12-1015(a) is

certainly much closer than that of the current provision to the

wording of the exemption in FI §11-301(b)(6). In fact, the ILL

exemption for sellers (which, as we have seen, does not extend to

sellers who do second-lien secured indirect financing) was enacted

for the first time as part of the same legislation. Therefore, at first

blush it would appear that, at least in 1983, the General Assembly

intended to exempt from ILL licensure only sellers of goods and

services who did not secure their extensions of credit with a second

lien on residential real property. Yet even this conclusion is made

problematic by the second half of the single sentence enacted in

1983 as CL §12-1015(a). The second independent clause of that

sentence, which begins after the first comma with the words “a

credit grantor making a loan ...,” seems to be saying that a credit

grantor is only subject to ILL licensure in the first place if the credit

grantor is extending credit that is not secured by a second lien on

residential real property. If this language were given literal effect,

the preceding clause, limiting the scope of the exemption from

licensing, would be meaningless. These seemingly inconsistent

provisions appear in the same sentence and were enacted at the same

time.

Perhaps a grade-school teacher of a generation ago could sort

out this grammatical morass of double negatives. Under the

teaching of Kaczorowski, however, such gyrations are not the route

to discerning the purpose of the statutory scheme. The best

reconciliation of these provisions is to view the first half and the

second half of the 1983 version of CL §12-1015(a) as each

addressing altogether different subjects, albeit the language fails to

make the distinction clear. The first half of the subsection concerned

sellers of goods or services only. The second half gave a separate,

independent exemption to licensees under the former Secondary

Mortgage Loan Licensing Law and was not intended to affect

sellers.
110 [79 Op. Att’y

The only mention of home improvement contractors in the 6

legislative history is inconclusive.

In support of this view, subsection (b) of CL §12-1015

expressly made the licensing requirement for secondary mortgage

lenders then in effect applicable to extensions of credit under CL

Subtitle 10, if they were secured by a secondary lien on residential

real property. After the enactment of Chapter 143, the

Commissioner of Consumer Credit did not require secondary

mortgage licensees to obtain a license under the ILL as a prerequisite

to using CL Subtitle 10. This administrative policy was based upon

the view that the second half of CL §12-1015(a) addressed ) and

exempted ) secondary mortgage loan licensees. A practice of this

kind, established soon after the passage of a statute, is quite

persuasive in interpreting provisions applied by the administrative

body. See, e.g., Maryland Classified Employees Ass’n v. Schaefer,

325 Md. 19, 33, 599 A.2d 91 (1991); Falik v. Prince George’s

Hosp., 322 Md. 409, 416, 588 A.2d 324 (1991). 

Moreover, the provisions enacted in the ILL as a part of the

same bill did not suffer from the same internal ambiguity.

Presumably, had the exemption for second mortgages established in

the second half of CL §12-1015(a) been intended to affect sellers,

then the same language would have found its way into the pertinent

licensing provision of the ILL.

The upshot is that, while there remains some doubt, the better

view is that in 1983 the General Assembly intended to exempt sellers

of goods and services who wanted to use CL Subtitle 10 from ILL

license only if they did not extend credit secured by a second lien on

residential real property.6

From this less than certain conclusion, we move to the 1989

enactment of the MMLL, which amended CL §12-1015 from its

prior apparent internal inconsistency to its present irreconcilable

conflict with FI §11-301(b)(6).

In 1989, the General Assembly decided to revamp the licensing

requirements for mortgage lenders. Previously, two statutory

schemes were potentially applicable to non-depository mortgage

lenders, the Mortgage Banker/Mortgage Broker law, FI Title 12,

Subtitle 5, administered by the Bank Commissioner, and the

Secondary Mortgage Loan Licensing Law, former FI Title 12,
Gen. 98] 111

Subtitle 3, administered by the Commissioner of Consumer Credit.

Licensees under the latter law were permitted to engage in any type

of mortgage lending, but the statutory scheme provided no structure

for regulating these licensees when they engaged in transactions

other than second mortgages. See 73 Opinions of the Attorney

General 326 (1988). Mortgage Banker licensees could only make

or broker first mortgages. Among other things, the bonding

requirements and license fees were inconsistent. For these and a

host of other reasons described in the legislative history, Chapter 476

of the Laws of Maryland 1989 was enacted, repealing both of these

licensing laws and replacing them with the MMLL, governing all

mortgage lenders.

As part of this enactment, many references to the Secondary

Mortgage Loan Licensing Law and the Mortgage Banker statute

were deleted or changed in the Commercial Law Article. Among

these changes, all references to second liens on residential real

property were deleted from CL §12-1015, including the exception to

the exemption for sellers. Noting in the title or legislative history of

Chapter 476 indicates the slightest intention to substantively change

the ILL licensing provisions as they applied to sellers of goods or

services extending credit under Subtitle 10.

The exemption from ILL licensure that the second half of §12-

1015(a) had previously afforded to secondary mortgage loan

licensees was removed. No similar exemption was enacted for

MMLL licensees. Accordingly, since the effective date of the

MMLL, the Commissioner of Consumer Credit has required MMLL

licensees to obtain an ILL license as a prerequisite to extending

credit under Subtitle 10. Gone, therefore, is the internal

inconsistency in CL §12-1015(a). But there is no clue explaining

why the first half of CL §12-1015(a) was changed (as a part of the

enactment of the MMLL), creating the conflict with the ILL

licensing statute.

The story does not end there, because Chapter 628 of the Laws

of Maryland 1991 added an additional exception to the exemption

for sellers set forth in FI §11-301(b)(6). As was true of the 1983

enactment, the General Assembly was changing the licensing statute

to reflect a new requirement that a person subject to regulation under

a different statutory scheme obtain an ILL license. This time it was

“credit services businesses.” See CL §14-1901. The new exception

made clear that a seller of services could not escape the licensing

requirement if it engaged in credit services business activities.
112 [79 Op. Att’y

Applying the principles of statutory interpretation discussed

earlier to these statutes, we conclude that the prudent course of

action for a Contractor doing indirect financing under Subtitle 10 is

to obtain an installment loan license, unless the Contractor extends

no credit secured by a second lien on residential real property.

Although the 1989 MMLL enactment is the latest legislative

enactment that directly changed the exemption provisions applicable

to sellers whose financing is secured by a secondary mortgage, that

law did not state such a change as part of its purpose. Moreover, the

General Assembly has since amended the exemption for sellers

found in the ILL licensing provisions, without disturbing the second

mortgage language.

Additional support for this conclusion may be derived from the

familiar rule of statutory interpretation that enactments dealing with

a specific topic will govern in the event of a conflict with a more

general statute, with respect to situations that fall within the purview

of both enactments. GEICO v. Insurance Comm’r, 332 Md. 124,

132, 630 A.2d 713 (1993); Farmers & Merchants National Bank v.

Schlossberg, 306 Md. at 48; A.S. Abell Publishing Co. v. Mezzanote,

297 Md. 26, 464 A.2d 1068 (1983). The ILL is more specific than

Subtitle 10 as to licensing issues, because licensing is the total sum

and substance of the ILL. Subtitle 10 is a generic credit regulation

governing all aspects of the extension of closed-end credit. To the

extent licensing is addressed, it is part of a larger, more general

scheme. 

To summarize, our best assessment of this statutory puzzle is

that if the question were litigated, the courts are more likely than not

to hold that the ILL licensing provisions predominate. But the real

answer ought to come from the General Assembly, which needs to

resolve the conflict and bring certainty to those engaged in this

business. 

C. Statutes for Which No License is Needed

1. CL Title 12, Subtitle 4

Despite our conclusion that an ILL license is necessary for

certain Contractors to utilize Subtitle 10, there are alternative means

of credit extension that do not require a license. 
Gen. 98] 113

Indirect financing that is secured by a second lien on residential

real property may be made under CL Title 12, Subtitle 4, the

Secondary Mortgage Loan Law. In fact, after October 1, 1993, if the

documents evidencing the financing agreement do not elect Subtitle

10 in writing, the loan will automatically be deemed subject to

Subtitle 4. CL §12-1013.1. See also Schmidt v. Beneficial Finance

Co., 285 Md. 148, 400 A.2d 1124 (1979). Subtitle 4 applies to timeprice financing as well as a loan of money. The definition of

“secondary mortgage loan” set forth at CL §12-401(i) is as follows:

“Secondary mortgage loan” means a loan

or deferred purchase price secured in whole

or in part by a mortgage, deed of trust, security

agreement, or other lien on real property

located in the State, which property: 

 (i) Is subject to the lien of one or more

prior encumbrances, except a ground rent or

other leasehold interest; and 

 (ii) Has a dwelling on it designed

principally as a residence with accommodation

for not more than four families.

(Emphasis supplied.)

In an extensive analysis of the meaning and scope of the term

“deferred purchase price,” then Assistant Attorney General Robert

deV. Frierson concluded that it wasintended to include the financing

of home improvements; accordingly, “an installment sale home

improvement transaction secured by a secondary mortgage is subject

to the [Secondary Mortgage Loan Law] unless the transaction is

made pursuant to Subtitle 10 of the Commercial Law Article.”

Letter of advice to Commissioner of Consumer Credit Alan T. Fell,

at 12 (January 24, 1986). We concur.

Other than the MMLL license, which, as discussed in Part IIIA

above, can be avoided by transferring the financing contract within

30 days of completion, there is no license requirement for making a

loan or extension of credit under Subtitle 4. 
114 [79 Op. Att’y

 In Maryland, UCC Article 2 is codified as CL Title 2. The Sales 7

Article, by its express terms, applies only to sales of “goods,” as opposed

to services.

2. Retail Installment Sales

If the indirect financing is secured by an interest in the goods

supplied by the Contractor, the financing agreement, if Subtitle 10

is not elected, will meet the definition of an “installment sale

contract” set forth in the Retail Installment Sales Act (“RISA”), CL

Title 12, Subtitle 6: 

“Installment sale agreement” means a

contract for the sale of consumer goods,

negotiated or entered into this State, under

which:

(i) Part of all of the purchase price is

payable in one or more payments after the

making of the contract; and

(ii) The seller takes collateral security or

keeps a security interest in the goods sold.

CL §12-601(1)(1).

There is lively debate as to whether a home improvement

contract, which involves the sale of both goods and services, can fall

within the reach of RISA’s regulatory coverage, because the statute

purports to govern only sales of “tangible personal property,” which

is the definition of the term “goods.” CL §12-601(g). The debate

stems largely from case law around the country, and in Maryland,

that draws a distinction between contracts for the sale of goods

versus services for purposes of determining the applicability of

Article 2, “Sales,” of the Uniform Commercial Code (“UCC”). In 7

Maryland, at least two tests have been articulated by the Court of

Appeals for determining whether Article 2 applies to a contract for

the sale of both goods and services. The first is the “predominant

purpose” test, which asks whether the predominant purpose is the

sale of goods, with incidental labor included (for example, sale and

installation of a water heater), or instead is the sale of a service with

goods added incidentally (for example, a contract with an artist for
Gen. 98] 115

a painting). Burton v. Artery Co., Inc., 279 Md. 94, 367 A.2d 935

(1977).

The other test, called the “gravaman” test, was announced by

the Court of Appeals in a products liability case against the

seller/installer of an in-ground swimming pool. Anthony Pools v.

Sheehan, 295 Md. 285, 455 A.2d 434 (1983). The Court held in that

case that the warranty provisions of the UCC Sales Article applied

because the injury was allegedly caused by a defective diving board

(goods), rather than negligent installation services. Thus the

“gravaman” of the issue in dispute involved the goods, rather than

the services, irrespective of the “predominant purpose” for the whole

contract.

There is good reason to believe that neither of these tests would

be wholly determinative of the applicability of a credit regulation

statute such as RISA. First, the Court of Appeals has limited

application of the predominant purpose test, holding, in a tax case

not involving the UCC, that it was only one of several pertinent

factors. Comptroller of the Treasury v. Equitable Trust Co., 296

Md. 459, 464 A.2d 248 (1983). Moreover, the Court has already

applied RISA to home improvement contracts, although never

directly addressing the issue whether the services sold under the

contract affect that applicability. See Financial Credit Corp. v.

Williams, 246 Md. 575, 229 A.2d 712 (1967). See also United

States v. Bland, 159 F. Supp. 395 (D. Md.), aff’d, 261 F.2d 109 (4th

Cir. 1958). So, too, has the Attorney General. 56 Opinions of the

Attorney General 244 (1971).

Finally, the few cases interpreting the credit regulation laws

make much of the remedial nature of the statutes. United States v.

Bland, 159 F. Supp. at 396; Hudson v. Maryland State Housing Co.,

207 Md. 320, 114 A.2d 421 (1955); Stride v. Martin, 184 Md. 446,

41 A.2d 489 (1945). In contrast, the UCC is more of a nonregulatory scheme for ordering civil liability in commercial

transactions. These principles appear to have led the Court of

Appeals to apply one set of regulatory laws governing credit, even

when the contract may have been intended to be governed by a

different statute. Biggus v. Ford Motor Credit, 328 Md. 188, 613

A.2d 986 (1992) (discussing application of RISA provisions to a

contract made under Subtitle 10); Schmidt v. Beneficial Finance Co.,

285 Md. at 157 (Subtitle 4, governing second mortgages, applied to

a contract intended to be offered under Subtitle 3, the Consumer
116 [79 Op. Att’y

 It is also possible that, if the financing contract is secured both by 8

the goods supplied and a secondarymortgage on the customer’s residence,

both RISA and Subtitle 4 might simultaneously apply. Such appears to be

the teaching of Biggus v. Ford Motor Credit. Thus, the terms of the

financing would be required to comply with the regulatory restrictions

under both statutes. Neither of these statutes requires an ILL license,

however.

Loan Law). In both of these cases, the Court of Appeals seemed to

analyze the applicability of the particular credit law by simply

comparing the terms of the contract with the definitions found in the

statute, notwithstanding that other terms of the contract met other

definitions elsewhere. Thus, in Schmidt, it did not matter that many

of the terms of the contract only appeared in loans made under the

Consumer Loan Law, so long as other terms met the definition of a

“secondary mortgage loan” under Subtitle 4.

For these reasons, the likely result is that a contract for the

mixed sale of goods and services, such as a home improvement

contract, will be subject to RISA simply because a part of the

contract, the sale of goods, falls within the definition in CL §12-

601(1) of “installment sale contract.” There is, however, no direct 8

financing under RISA and no licensing requirement under the ILL.

3. Other Credit Mechanisms

Finally, there are two possible alternatives to unsecured

lending under Subtitle 10, neither of which requires an ILL license.

It is at least arguable that the closed-end credit provisions of

the Retail Credit Accounts Law (“RCAL”), CL Title 12, Subtitle 5,

may apply to unsecured indirect financing, if Subtitle 10 is not

elected. A “retail credit account” is defined in CL §12-501(1) as “an

agreement or transaction for the retail sale of goods and services,

which is negotiated or entered into and pursuant to which a time sale

price is established.” This statute does not provide for the extension

of credit on a secured basis. The RCAL definition of the term

“goods” expressly excludes “[h]ome improvement, as defined in the

Maryland Home Improvement Law, or any transaction under that

law.” CL §12-501(h)(3)(iii). The definition of “services,” however,

includes “services furnished in connection with the improvement of

real property.” CL §12-501(n)(2). These facially inconsistent
Gen. 98] 117

 This analysis is not altogether satisfactory either, because the 9

definition of “home improvement” under the Business Regulations

Articles does not limit the term to contracts where goods as well as

services are provided. BR §8-101(g). 

 Under RISA, the definition of “goods” is limited to “tangible

10

personal property that has a cash price of $25,000 or less.” CL §12-601(j).

provisions can be harmonized by interpreting the definition of

“services” as excluding mixed contracts for the sale of goods and

services. Under this analysis, a contract with a homeowner which

involves the Contractor providing labor and expertise only, might

fall within the RCAL. If, however, there is any sale of goods that

falls within the definition of a “home improvement,” or a

“transaction under that law,” it appears that the contract falls outside

the definition of a retail credit account. 

9

On balance, it is most likely that the courts would not apply

RCAL, as it presently reads, to mixed sales of goods and services

that meet the definition of “home improvement” in the Business

Regulations Article. However, a home improvement contract for

services only would appear to be subject to the provisions of RCAL.

In any event, no ILL licensee is needed to extend credit under

RCAL.

Even if RCAL is not an available alternative to Subtitle 10,

unsecured, indirect financing may be offered by a Contractor under

what has come to be known in the lending industry as the

“unregulated time-price differential doctrine.” This doctrine

currently has its most common application to time-deferred contracts

for the sale of goods that, although otherwise meeting the definition

of an “installment sale agreement” under RISA, are outside the

regulatory framework because the price of the goods exceeds

$25,000. Thus, a seller that finances the sale of an item with a cash 10

price higher than that amount is arguably left uncovered by any of

the provisions of CL Title 12, assuming that Subtitle 10 has not been

elected.

The unregulated time-price doctrine seems to fit the situation

in which a Contractor offering indirect, unsecured financing does not

elect Subtitle 10. If the RCAL cannot be applied to the terms of the

financing contract, there is no other niche in CL Title 12 into which

this type of financing fits. As might be anticipated, no license under
118 [79 Op. Att’y

the ILL is required for extending credit under the unregulated timeprice doctrine. 

IV

Conclusion

In sum, a home improvement contractor that desires to extend

indirect financing under CL Title 12, Subtitle 10 is probably required

to obtain an Installment Loan Law license from the Commissioner

of Consumer Credit, although this conclusion is not free from doubt.

If the Contractor takes a security interest in the customer’s residence,

a mortgage lender’s license is required unless the financing contract

is transferred within 30 days after completion of the contract. If the

Contractor is extending indirect financing outside of Subtitle 10, the

Contractor need not obtain an Installment Loan Law license. 

Joseph Curran, Jr.

Attorney General

J. Steven Lovejoy

Assistant Attorney General

Jack Schwartz

Chief Counsel

 Opinions and Advice