CA court holds Oakland predatory lending ordinance invalid

Mortgage Banking, March, 2005

ON JAN. 31, 2005, THE CALIFORNIA SUPREME Court invalidated the city of Oakland's antipredatory lending ordinance, ruling that the ordinance (Ord. No. 12361 CMS), is pre-empted by the California covered-loan statute enacted in 2001.

The court concluded that in enacting statutory restrictions on "covered loans," the California Legislature has, by implication, "fully occupied the field of regulation of predatory practices in home-mortgage lending," and the court invalidated the ordinance on that ground. The court's reasoning also rested on the fact that the regulation of mortgage lenders has historically occurred at the state level rather than the municipal level, and the court's determination that effective regulation of mortgage lending requires uniformity throughout a state.

The National Home Equity Mortgage Association (NHEMA), Washington, D.C., applauded the California Supreme Court's ruling as a positive action for consumers and the effective functioning of the mortgage market.

"A proliferation of differing local laws regulating mortgage lending is counterproductive," said Mitch Feinstein, NHEMA's chairman. "While these laws are meant to protect consumers, their end result is actually to confuse, restrict access to mortgage loans and put the dream of homeownership out of reach for many people."

"Uniform national standards will give consumers their most effective guarantee against lending fraud," said Feinstein. "They will also reduce the costs of and broaden access to mortgages by giving lenders a single set of effective standards they must meet instead of the patchwork of regulations they must meet today. I hope Congress will quickly follow the trail blazed by the California Supreme Court."