The Ohio Supreme Court heard oral arguments yesterday in the American Financial Services Association’s (the “AFSA”) challenge of the City of Cleveland’s Predatory Lending Ordinance. The case, American Financial Services Ass’n v. Cleveland, involves three local ordinances adopted by the City of Cleveland in 2002 that prohibit various “predatory” practices by consumer lending institutions doing business in the city. The legal question raised by AFSA was whether those three ordinances were unenforceable because they conflicted with a State law that imposes less restrictive limits on consumer lending practices.
At the trial level, the Court of Common Pleas for Cuyahoga County granted summary judgment in favor of the AFSA holding that the ordinances (1) improperly intruded into the field of consumer lending regulation when the State had preempted the entire field of lending regulation in Ohio by enacting Ohio Revised Code Sections 1.63(A) and (B); and (2) included specific conflicts with State law because the Cleveland ordinances imposed a consumer education requirement not imposed by State law, banned certain practices not banned by the State statutes, and defined mortgages and home improvement loans as “predatory” if they imposed interest rates and/or add-on interest points and transaction charges that were lower than the limits set by State law.
However, the Eighth District Court of Appeals reversed the trial court's judgment. The Eighth District ruled that, because the State constitution guarantees municipalities the right to adopt and enforce police regulations so long as they do not conflict with general State laws, the legislature acted unconstitutionally in writing R.C. 1.63 to preclude cities from any exercise of their home rule authority to regulate lending practices. The Eighth District held further that, based on prior Ohio court decisions, the Cleveland ordinances were not “in conflict” with the State predatory lending statutes because they did not permit any lending practices prohibited by the state, and did not prohibit any lending practices that are affirmatively permitted by the state regulations.
The Eighth District’s decision was in conflict with a 2004 decision of the Second District Court of Appeals, City of Dayton v. State , in which that court held that a predatory lending ordinance enacted in Dayton was in direct conflict with State law and therefore void and unenforceable. As such, the Eighth District certified the conflict to the Ohio Supreme Court.
According to the AFSA, “if Cleveland’s ordinance is upheld, the balance of power will tip towards the cities – unleashing similar ordinances not only in Ohio but elsewhere in the nation.” This could be particularly concerning to the mortgage lending and financial services industry, who would have to navigate through a “confusing patchwork of local regulations that could lead lenders to stop making loans in Ohio.”