Ohio, Maryland courts overturn local predatory lending laws.

Courts in two states in November struck down two so-called anti-predatory-lending laws, ruling the local ordinances that sought to regulate mortgage lending practices in Cleveland, and Montgomery County, Maryland, unconstitutionally encroached upon the authority of state lawmakers.

In

a 5-2 decision, the Supreme Court of Ohio, in American Financial Services Association v. Cleveland, held that three Cleveland city ordinances violated the "home rule" provision of the Ohio constitution. The court invalidated the Cleveland ordinances on the basis that they imposed regulations on local residential mortgage lenders that were more restrictive than statewide regulations enacted by the Ohio General Assembly.

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The case involved three local ordinances adopted by the city of Cleveland in 2002 that prohibited various "predatory" practices by consumer-lending institutions doing business in the city. Shortly after they were adopted, the Cleveland ordinances were challenged in a court action initiated by the American Financial Services Association (AFSA), Washington, D.C.

In determining whether the Cleveland lending ordinances conflicted with the state's regulatory scheme, Justice Terrance O'Donnell, writing for the majority, pointed to prior Ohio Supreme Court decisions in which the court has held that local ordinances conflict with state laws when they "permit what the state prohibits, or prohibit what the state permits."

O'Donnell further cited decisions that have struck down local ordinances imposing speed limits that were lower than what was permitted by state law, earlier local closing times for liquor stores than were permitted by state liquor regulations, and lower local caps on BINGO parlor prizes than were permitted by state charitable gaming laws, concluding that "any local ordinances that seek to prohibit conduct that the state has authorized are in conflict with the state statutes and are therefore unconstitutional."

Meanwhile, in Maryland a circuit court judge overturned Montgomery County's Predatory Lending Ordinance 36-04 as unconstitutional and unenforceable.

Unlike other local so-called anti-predatory-lending laws previously enacted (and later amended or repealed) in the District of Columbia, Georgia and New Jersey, the Montgomery County ordinance--passed in November 2005--was different in that it attempts to use a civil-rights exemption within Maryland's state lending law to assert its authority over lenders.

The penalty provisions of the ordinance granted the Montgomery County Human Rights Commission "broad discretionary authority" to impose a wide variety of monetary damages for violating the ordinance, including an increase in statutory damages from $5,000 to $500,000 per violation.

The court found that under Maryland's constitution, the power to enact laws is vested principally in the state legislature. Charter home rule counties, like Montgomery County, are granted limited rights of self-determination, including the authority to enact "local" laws.

Circuit Court Judge Michael D. Mason stated in his ruling that "no matter how noble the purpose, a 'general' law is beyond the authority of the county to enact and is unconstitutional and that the ordinance now before the Court, Bill 36-04, is such a law."

The court went on to find that the ordinance, as drawn, had a substantial territorial effect beyond the borders of Montgomery County and that it concerned matters that are of significant interest to the residents of the entire state by affording injunctive relief and non-economic damages of up to $500,000, remedies traditionally reserved to the legislature and the courts to create.

The court concluded that for all these reasons, Bill 36-04 was not a local law and is therefore unconstitutional. Accordingly, it was declared null and void, and the judge issued a permanent injunction that permanently enjoins the county from enforcing it.