                             PUBLISHED

                  UNITED STATES COURT OF APPEALS
                      FOR THE FOURTH CIRCUIT


                            No. 15-1976


MICHELLE WILLIAMS, f/k/a Michelle Dargan,

                Plaintiff - Appellant,

           v.

LENDMARK FINANCIAL SERVICES, INC.,

                Defendant - Appellee.



Appeal from the United States District Court for the District of
Maryland, at Baltimore.     William D. Quarles, Jr., District
Judge. (1:13-cv-01740-WDQ)


Argued:   May 10, 2016                      Decided:   July 8, 2016


Before NIEMEYER and WYNN, Circuit Judges, and Thomas E.
JOHNSTON, United States District Judge for the Southern District
of West Virginia, sitting by designation.


Affirmed in part, reversed in part, and remanded by published
opinion. Judge Niemeyer wrote the opinion, in which Judge Wynn
and Judge Johnston joined.


ARGUED:   Cory Lev Zajdel, Z LAW, LLC, Reisterstown, Maryland,
for Appellant.    Brian L. Moffet, MILES & STOCKBRIDGE P.C.,
Baltimore, Maryland, for Appellee. ON BRIEF: Megan B. Burnett,
MILES & STOCKBRIDGE P.C., Baltimore, Maryland, for Appellee.
NIEMEYER, Circuit Judge:

        In connection with a personal loan of roughly $2,600 that

Lendmark Financial Services, Inc., a Georgia corporation, made

to Michelle Williams, a Maryland resident, Williams was charged

and paid numerous late fees.                In this action she challenges,

under    Maryland’s       Credit    Grantor      Closed    End   Credit     Provisions

(“CLEC”), Md. Code Ann., Com. Law § 12-1001 et seq., the manner

in which Lendmark charged and applied those late fees.                             After

the district court entered judgment for Lendmark, Williams filed

this appeal.

        She    contends    (1)     that   Lendmark        violated   CLEC    and    the

promissory note that she signed by applying her monthly payments

first     to    late   charges,      then       to   interest,    and     finally    to

principal; (2) that it violated CLEC and the note by imposing

late charges on certain timely payments when it concluded that

its application of her monthly payments to satisfy earlier late

fees rendered the amount of the monthly payments insufficient to

pay the interest and principal due; and (3) that it violated

CLEC and the note by prematurely “assessing” late charges on its

accounting records by posting them after the close of business

on the fifth day of the five-day grace period provided for in

the note, rather than on the following day.




                                            2
     For the reasons that follow, we affirm the district court’s

dismissal of Williams’ first and third claims and reverse the

dismissal of her second claim.


                                               I

     In     November      2009,       Williams           borrowed      $2,620.72          from

Lendmark, executing a promissory note in favor of Lendmark.                                The

note required Williams to pay 36 monthly installments of $102.23

each, representing an annual interest rate of 20.24%.                                 In the

note,     Williams    agreed      that    if       she    did    not     pay    a    monthly

installment by the first day of each month plus a five-day grace

period, she would have to pay a late charge of 10% of the late

installment     or    $25,     whichever           was   the    greater.            The   note

provided that all payments were to be applied first to late

charges, then to accrued interest, and finally to principal.

     Williams had three methods by which to make payments:                                (1)

by making the payments in person at Lendmark branch offices,

which were open generally from 8:30 a.m. to 5:30 p.m.; (2) by

making    the   payments       over      the       telephone     to    Lendmark       branch

offices during business hours; and (3) by making the payments by

mail.     Thus, there were no means by which Lendmark could receive

a   payment     on    a   given     day        after     the     close     of    business.

Accordingly,     in   administering            the   loan,      Lendmark       posted     late




                                               3
charges on its accounting records after the close of business on

the fifth day of the five-day grace period.

      For the first three months -- January to March 2010 --

Williams made timely monthly payments of $106.                          No explanation

is   given    for    why   she     paid    $106   each     month     rather     than     the

$102.23 specified in the note.               In April 2010, Williams made her

payment late and was charged a late fee of $25.                         From then until

December 2010, she was charged a late fee of $25 three more

times -- in July, September, and October.                          In December 2010,

however, she made a payment of $106 within the grace period.

Nonetheless,        Lendmark     charged    her     a   $25   late    fee      because    it

applied that month’s payment first to prior late fees and then

to   interest       and    principal,      thereby,       according       to    Lendmark,

leaving      her    with    only    a     partial       payment    of    interest        and

principal.         The same circumstances occurred for her February

2011 payment.        After March 2011, Williams’ payments were mostly

made in amounts less than the $102.23 specified in the note, and

she incurred late fees on each of those occasions.                             Long after

the maturity of the note, Williams finally paid off the entire

loan, having been charged more than 40 late fees.

      Williams commenced this action in the Circuit Court for

Baltimore City, alleging that Lendmark “charged numerous late

fees . . . in violation of CLEC,” the note, and other state law

obligations.        Lendmark removed the case to federal court under

                                            4
diversity jurisdiction and thereafter filed a motion to dismiss

the complaint.         The district court granted the motion as to all

claims except Williams’ claim that Lendmark “assessed late fees

. . . prior to the expiration of her 5 day grace period,” in

breach of the note’s terms and of CLEC.                     After full discovery,

however, the district court granted Lendmark summary judgment,

dismissing this claim also.

      From the district court’s judgment dated July 27, 2015,

Williams filed this appeal, raising three issues:                          (1) whether

Lendmark’s application of installments first to late fees, then

to   interest,    and     finally    to   principal        violated      CLEC    and   the

note;    (2)     whether      Lendmark’s       imposition      of     late      fees    on

installments made in December 2010 and February 2011, which were

timely    made,       violated   CLEC     and    the   note;       and    (3)    whether

Lendmark’s posting of late fees on its books after the close of

business on the fifth day of the five-day grace period violated

CLEC and the note.


                                          II

      Williams contends first that the district court erred in

approving      Lendmark’s     application       of   Williams’      payments      “first

toward    late        fees,   then   toward      interest       and      last     toward

principal.”       She argues that the practice of applying payments

first    to    late    fees   violated     CLEC,     Md.    Code    Ann.,       Com.   Law


                                           5
§ 12-1008(c) (requiring that “all payments by the borrower shall

be applied to satisfaction of scheduled payments in the order in

which they become due” (emphasis added)), because late fees were

“not part of any ‘scheduled payment’ of principal and interest.”

     Lendmark contends that its practice of applying Williams’

payments “‘first to late charges then to accrued interest and

then to the principal’ . . . was consistent with not only the

terms of her promissory note but also . . . § 12-1008 of CLEC,”

which authorizes a credit grantor to charge a late fee if “the

agreement, note, or other evidence of the loan permits,” Md.

Code Ann., Com. Law § 12-1008(b).   We agree.

     CLEC expressly allows a creditor to impose late charges,

Md. Code Ann., Com. Law § 12-1008(a)(2)(i), but it limits the

manner in which such late charges may be imposed, providing:

     (b)   In the case of a loan to a consumer borrower, no
           late or delinquency charge may be charged unless
           the agreement, note, or other evidence of the
           loan permits. No more than 1 late or delinquency
           charge may be imposed for any single payment or
           portion of payment, regardless of the period
           during which it remains in default.

     (c)   For the purposes of subsection (b) of this
           section, all payments by the borrower shall be
           applied to satisfaction of scheduled payments in
           the order in which they become due.

Id. § 12-1008(b), (c) (emphasis added).

     In this case, the promissory note that Williams signed did

permit Lendmark to impose late charges, as authorized by CLEC:



                                6
       Late Charge:      If [Williams] do[es] not pay any
       installment within 5 days after its scheduled or
       deferred due date, [Williams] agree[s] to pay a late
       charge of the greater of 10% of the unpaid amount of
       the installment or $25.00. Only one late charge shall
       be   charged  on   any  installment or  part   of  an
       installment.     For the purpose of computing late
       charges, all payments by [Williams] shall be applied
       to scheduled payments in the order they become due.
       The late charge will be in addition to daily accrued
       interest.

       To make her argument, Williams urges an interpretation of

CLEC   and   the    note      that   would       require   that     each   payment    be

applied only to interest and principal, leaving for some later

unspecified date the payment of late charges.                       But her argument

is not supported by either the language of the note or by CLEC.

       Contrary to her suggestion that a “scheduled payment” can

only include interest and principal, the note simply defines a

“monthly payment” or “monthly installment” to be a payment of

$102.23, payable the first day of each month.                        Nowhere does it

break down the $102.23 amount into components.

       To   be   sure,   the    monthly      payment       amount    of    $102.23   was

calculated       based   on    the    amortization         of   principal     and    the

applicable interest rate over 36 monthly payments.                         But it does

not follow that Lendmark must apply each monthly payment only to

principal and interest.              Indeed, what Williams agreed in the

note to pay each month is separate from how Lendmark agreed to

apply those payments.




                                             7
       In    an    effort   to    render     her    obligation       to    make   monthly

payments of $102.23 somehow inapplicable to prior late charges,

Williams relies on language in the note that “all payments by

[her] shall be applied to scheduled payments in the order they

become due.”         (Emphasis added).            She points to similar language

in CLEC.          See Md. Code Ann., Comm. Law § 12-1008(c) (providing

that    “all       payments      by    the   borrower      shall      be    applied   to

satisfaction of scheduled payments in the order in which they

become due” (emphasis added)).                   But Williams takes the language

from both the note and CLEC out of context.                      In both locations,

the language was included for the purpose of calculating and

applying      late    charges.         Thus,      the   note   provided,      “For    the

purpose of computing late charges, all payments by [Williams]

shall be applied to scheduled payments in the order they become

due.”       (Emphasis added).          And CLEC provides similarly, “For the

purposes of [preventing more than one late charge on a monthly

installment], all payments by the borrower shall be applied to

satisfaction of scheduled payments in the order in which they

become due.”         (Emphasis added).           Thus, not only is the language

on   which     Williams       relies    included        only   for   the    purpose    of

defining how to calculate and apply late charges, the language

itself recognizes the right to apply payments to satisfy late

charges.          Williams provides no explanation as to how the note

and CLEC would provide for her discharge of her obligation to

                                             8
pay late charges.         That omission is yet more glaring in view of

the fact that the note provides explicitly that “[e]ach payment

will be applied first to late charges, then to accrued interest

and then to the principal.”         (Emphasis added).

     In short, under the note and consistent with CLEC, Williams

would    satisfy    her    obligation   to    Lendmark   simply    by   paying

$102.23 by the first day of each month or within the grace

period.    And Lendmark would satisfy its obligation to Williams

by applying each payment first to late charges, then to accrued

interest, and finally to principal.             Accordingly, if Williams’

payment were late or were made in an amount less than $102.23,

she would incur a late charge, which would be paid from the next

payment.     In that case, however, the principal would not be

fully repaid after 36 monthly payments because of the payments’

application to late charges, and Williams would have to continue

making payments until she paid the principal in full.                   Indeed,

the note so provides:          “If any portion of the balance remains

unpaid    after    maturity    of   this    note,   whether   as   originally

scheduled or accelerated, [Williams] will pay interest on the

remaining balance until paid in full at the Interest Rate.”                And

in this case, Williams did continue making payments beyond the

36 months, eventually repaying the note in full.




                                        9
       We     conclude,   therefore,         that     Lendmark’s      practice     of

applying payments first to late charges was legal, both under

CLEC and under the terms of the note.


                                        III

       Williams also contends that, with respect to her December

2010    and    February      2011   payments,       which     were    timely   made,

Lendmark charged and collected late fees in violation of CLEC

and the note when it took the position that when these payments

were   applied     to   late    fees   from    earlier      months,    they    became

insufficient to pay fully the interest and principal due.                         She

concludes, “In perpetuating this servicing tactic, Lendmark was

able to assess and collect multiple late fees from Williams that

it   was    not   entitled     to   assess    or    collect   under    CLEC    (i.e.,

December 2010; February 2011 late fees).”

       Lendmark contends that even though the December 2010 and

February 2011 payments were in excess of $102.23 and were timely

made, they “were not for the amounts due” because she still owed

late fees imposed in earlier months and, when those fees were

satisfied from the payment, the remainder amounted only to a

partial payment, thereby triggering the late fees.

       We conclude that Lendmark’s practice of charging late fees

solely because payments were applied first to earlier late fees

constitutes an improper collection of late fees, both because


                                         10
the note did not require monthly payments of amounts in excess

of   $102.23     and     because    the   charging    of   late    fees    based    on

application of an otherwise conforming payment to prior late

fees amounted to the collection of multiple late fees for a

single installment, in violation of both CLEC and the note.

      First, while Lendmark concedes that Williams’ December 2010

and February 2011 payments exceeded the $102.23 required amount

(she paid $106 each month) and that they were timely made, it

argues in effect that Williams owed more than $102.23 in those

months     because     she   had    accrued    late   charges     during     previous

months.         This   argument,      however,    again    confuses    the    note’s

specification of the amount of payment with its authorization as

to   how   to    apply    each     payment.      Nowhere   in   the   note    is   the

monthly payment defined to be more than $102.23.                   To be sure, if

Williams had a past-due late charge, the payment for the next

month would be applied first to that late charge.                          But that

provision does not support a contention that the next month’s

payment of $102.23 was insufficient in amount.

      Moreover, under Lendmark’s construction, the December 2010

and February 2011 payments were only partial payments because

the application of prior late charges caused Williams to pay an

insufficient amount to amortize principal and pay interest.                        The

effect of this argument would be to impose a late charge because

of, and only because of, the application of a payment to a

                                          11
previously      imposed          late     charge,             effectively        compounding         or

pyramiding late charges.                  We conclude that this interpretation

violates    both     the     provisions             of    CLEC      and    the       terms    of    the

promissory note.           CLEC provides that “[n]o more than 1 late or

delinquency      charge      may    be       imposed          for    any   single      payment       or

portion of payment, regardless of the period during which it

remains in default.”             Md. Code Ann., Com. Law § 12-1008(b).                              And

the note itself provides, parroting CLEC, that “[o]nly one late

charge     shall     be    charged        on       any    installment           or    part     of    an

installment.”             Yet,    the        only       basis       that   Lendmark          had    for

charging late charges in December 2010 and February 2011 was its

application of those otherwise conforming payments to satisfy

prior late charges, effectively imposing multiple late charges

for the same installment.

       While    it   is     true,       as    we     hold       above,     that      Lendmark       was

entitled to apply each payment that Williams made “first to late

charges, then to accrued interest and then to the principal”

without contravening § 12-1008, when this practice resulted in

more than one late charge being imposed for Williams’ failure to

make   a   scheduled        payment,         then        it    violated     §     12-1008.          The

charges Lendmark imposed in December 2010 and February 2011, and

perhaps in other months, despite Williams’ having made those

payments       before      the      end       of        the     grace      period,       certainly

multiplied late charges, thus violating CLEC and the note.

                                                   12
     Our    conclusion         with    respect       to     the    December    2010    and

February    2011    payments      is   consistent          with    Williams’    argument

that 16 C.F.R. § 444.4, a regulation promulgated by the Federal

Trade    Commission,      bars     “pyramiding         late       fees   and   inflating

interest.”       Lendmark, however, has filed a motion to strike this

argument because Williams failed to assert it before her reply

brief, depriving the district court of the opportunity to rule

on it in the first instance and Lendmark of the opportunity to

address    it.      Although      Williams         should    have    cited     16   C.F.R.

§ 444.4 earlier, we need not assess the merits of Lendmark’s

motion to strike because we reach our conclusion on this late-

charge     issue    apart      from    any        reliance    on    that     regulation.

Accordingly, we deny Lendmark’s motion as moot. ∗

     Thus, we conclude that Lendmark was not entitled to charge

a late fee in December 2010 or February 2011, or in any month in

which Williams paid an installment timely and in full.                                 The

payments that Williams made in December 2010 and February 2011

of $106 exceeded the $102.23 amount specified in the note and

each payment was timely made.

     Because       we   hold    that   Williams’          complaint      alleging     these

facts states a plausible claim for relief, at least with respect

to the December 2010 and February 2011 payments, we reverse the

     ∗ We also deny Williams’ motion to certify the question to
the Court of Appeals of Maryland.


                                             13
district court’s dismissal of this claim and remand for further

proceedings.


                                             IV

       Finally, Williams contends that Lendmark violated CLEC and

the    note   by    prematurely        “assessing”    late   fees,      posting    them

after the close of business on the fifth day of the grace period

rather than waiting until the following day.                      She argues that a

“day” of the grace period consists of a full 24-hour period.

       Lendmark      contends    that       because   it   was    not   possible   for

Williams to make payments after the close of business on the

fifth day of the grace period, any payment not made by the close

of business on that day was, in effect, late.

       CLEC permits a creditor to charge a late fee to a borrower

if “the agreement, note, or other evidence of the loan permits.”

Md.    Code     Ann.,     Com.   Law    §    12-1008(b).         Therefore,   whether

Lendmark violated CLEC in the manner Williams alleges becomes a

question of contract interpretation based on the text of the

promissory note.          And the promissory note in this case provides:

       Late Charge:     If [Williams] do[es] not pay any
       installment within 5 days after its scheduled or
       deferred due date, [she] agree[s] to pay a late charge
       of the greater of 10% of the unpaid amount of the
       installment or $25.00.

In    effect,      this   provision      simply   provides       that   Lendmark    may

charge Williams a late fee if she does not pay “any installment


                                             14
within 5 days after its scheduled or deferred due date.”                        When

Lendmark booked or assessed such a late charge on its internal

accounting    records       is   irrelevant       to   the   issue   of   whether   it

properly charged Williams for being late.

       In this case, Williams was only charged late fees after she

did “not pay [the] installment within 5 days after its scheduled

or deferred due date” (except, as noted earlier, in December

2010, February 2011, and any other month in which she timely

paid at least $102.23).             Thus, regardless of how the term “day”

is defined or interpreted, on each occasion on which Williams

was charged a late charge (except, e.g., in December 2010 and

February 2011), she did not pay the requisite installment within

five days of the due date.             Because the conditions of the note

for the imposition of a late fee were therefore satisfied in

each   case   where     a    late    fee    was    charged     (except,     e.g.,   in

December 2010 and February 2011), we reject her contention that

Lendmark   somehow    violated        the    promissory      note    by   “assessing”

late fees on its books after the close of business on the fifth

day of the grace period.              Accordingly, we affirm the district

court’s summary judgment on this issue.

       The judgment of the district court is

                                                                 AFFIRMED IN PART,
                                                                 REVERSED IN PART,
                                                                     AND REMANDED.



                                            15
