Oakland Lending Law
California Supreme Court voted in a 4-3 ruling overturning an Oakland ordinance restricting predatory lending:
Majority: Janice Rogers Brown, Marvin Baxter, Kathryn Mickle Werdegar, Ming Chin.
Dissent: Chief Justice Ronald George, Joyce Kennard, Carlos Moreno.
A divided California Supreme Court struck down on Monday Oakland 's landmark 2001 ordinance that sought to protect poor and elderly homeowners from high-cost predatory lending. The court said the ordinance overstepped the bounds of a milder state law that regulates many of the same practices. Responding to mortgage banking industry lawsuit,
The court ruled 4-3 that the state law, enacted eight days after the Oakland measure, prohibited cities from enacting their own, more stringent rules.
In addition, this ruling invalidates a 2003 ordinance in Los Angeles . "By acknowledging the state of California's power to pre-empt Oakland's mortgage lending ordinance, the Supreme Court has safeguarded the flow of capital vital to maintaining the widest range of mortgage options for Californians,'' said the head of the American Financial Services Association, the lenders' trade group that sued to overturn the ordinance. This California association said it objected only to "a patchwork of local and municipal ordinances'' and not to curbs on lending abuses. But Oakland officials and advocates for the elderly said the ruling left some of the most vulnerable residents at the mercy of cutthroat lenders.
The Oakland ordinance and the California state law both regulate subprime loans, made primarily to people with poor or no credit histories, at interest rates that sometimes reach 25 percent. Both measures prohibit making loans that are larger than borrowers can afford to repay, ban needless refinancing, limit points and fees, and ban penalties for early repayment. Oakland 's ordinance, caused mortgage brokers & lenders across the country to create policies that prohibits offering loans in Oakland. Obviously this hurt the consumer it tried to protect. Due to legal challenges, this Law was never enforced but the potential restrictions caused the lenders & brokers to pull the loan programs in Oakland.
In addition to banning loans in which the borrowers had a Debt to income ratio above 50 percent, the Oakland mortgage ordinance would have required the borrower to consult with a financial counselor, or go through the process of waiving that right, before agreeing to what the city perceived as a "high cost loan".
Originally, the lower courts ruled that the state law left cities the right to enact more stringent measures. However the Supreme Court majority disagreed. Justice Janice Rogers Brown said the Legislature chose the dividing line between protecting borrowers and cutting off an entire supply of loans, & implicitly prohibited local governments from drawing their own line. "Severe regulation of subprime lending might cause lenders to cease making such loans in California, or preclude borrowers from obtaining a loan based on equity in their home, even though such loans can serve a legitimate need,'' Brown said.
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