Maryland Security Deposit Interest Bills Moving towards Enactment
AOBA-backed legislation to correct key provisions in Maryland’s security deposit interest law appears headed to enactment. The Senate had passed SB 408 and the House has passed its companion bill HB 782 .
This bills make several important corrections and clarifications to legislation enacted overwhelmingly last year concerning the calculation of interest on residential security deposits. Key clarifications made by the bills concern the accrual of interest and the effective date for the interest rate change provided in last year’s legislation.
The General Assembly enacted SB 345 and HB 249 at the 2014 session to alter the rate of interest payable on residential security deposits from 3 percent to a market-based rate, effective Jan. 1, 2015. Under the legislation, rental housing providers are required to pay tenants interest on their security deposits based on a U.S Treasury rate that resets at the beginning of each year. Interest paid can never be less than 1.5 percent.
After the bills were signed into law we discovered parts of the bills that were ambiguous and required clarification:
- Accrual of Interest – For over 40 years, Maryland law has provided that interest on a tenant’s security deposit accrues in 6 month intervals. However, last year’s legislation included language providing for the calculation of interest on a monthly basis, without removing the 6 month accrual provision. These bills resolve this conflict by providing for the accrual of interest on a monthly basis, with no interest paid on amounts held for less than 6 months or partial months.
- Effective Date – Last year’s legislation had an effective date of Ja. 1, 2015, and was clearly intended to be prospective in effect. Interest accrued prior to Jan. 1, 2015 was payable at the prior 3 percent rate (4 percent in Prince George’s County). However, language in the enacting clause of the legislation was unclear regarding exactly when the new market-based interest rates would start to accrue. These bills make it clear that the new interest rates were intended to accrue as of the effective date of the bill – Jan. 1, 2015.