Nov. 27, 2006 – In a decision favoring state regulations over city laws, the Ohio Supreme Court has dealt a blow to local efforts to protect residents from inequitable home loans.
Last week, the court struck down a Cleveland law aimed at curbing predatory lending, ruling 5-2 that less stringent state laws preempted the cityâ€™s initiative; the state legislature strengthened the existing fair-lending regulations earlier this year. The court ruled mortgage practices fall under the state governmentâ€™s jurisdiction,
The ruling overturned an appeals court decision and sided with the American Financial Services Association, an industry group that challenged the Cleveland law. In recent years, local lending regulations in other cities, including Philadelphia and Oakland, have met similar legal roadblocks.
Clevelandâ€™s ordinance â€“ like other state and local statutes across the country â€“ targeted lending companies that rope people into manipulative home loans that can lead to crippling debt and foreclosure. The law required that consumers have access to financial counsel to help them understand the loan terms. It also restricted lenders from using certain deceptive payment schemes, such as "balloon payments" that hit borrowers with hidden long-term costs, or interest rates that ramp up over time.
The Ohio General Assemblyâ€™s new regulations on predatory lending, effective in January, contain similar restrictions on loan-marketing tactics, but are generally less stringent than Clevelandâ€™s law. The city ordinance established a more inclusive definition of predatory lending compared to the statewide regulation.
In a concurring opinion, Justice Maureen Oâ€™Connor argued that stricter local ordinances "might unintentionally harm the persons that they were designed to protect" by deterring lenders from certain local markets.
But Justice Paul Pfeifer argued in a dissenting opinion against "a one-size-fits-all rule regarding mortgage rates." Clevelandâ€™s racial and economic diversity, he said, makes its population especially vulnerable to predatory lending.
"Is it appropriate for the General Assembly to restrict the ability of municipalities to respond to the problems attendant to poverty?" he wrote.
The liberal think tank Policy Matters Ohio reported in July that Cuyahoga County, where Cleveland is located, had nearly 11,000 home-foreclosure filings in 2005, more than any other county in the state. Clevelandâ€™s population, meanwhile, has a higher proportion of blacks and Latinos and an income level that is 50 percent lower than the median income across the state.