City's lending law goes too far; Ohio law prevails, state's high court rules in Cleveland case
James Nash
Ohio cities may not adopt rules against predatory lending that are tougher than the state law, the Ohio Supreme Court ruled yesterday. The court's 5-2 ruling also could discourage cities from passing more restrictive local rules on matters such as assault rifles and environmental regulations. The majority of justices said Ohio 's "home rule" doctrine doesn't allow cities to pass strong laws in areas where state law holds sway.
Justices struck down Cleveland 's anti-predatory lending law as too strict, saying Ohioans are better served by a statewide standard on lending. Cleveland 's standards went further than state law in capping interest rates and fees and in requiring "balloon" payments. Cleveland also required lenders to counsel borrowers on the terms of a loan.
Earlier this year, state lawmakers adopted a set of regulations that are tougher than current law but less restrictive than the Cleveland rules. The new statewide rules take effect Jan. 1. In yesterday's ruling written by Justice Terrence O'Donnell, the court concluded that since mortgage loans are a matter of statewide concern, state law should apply. O'Donnell was joined by Justices Thomas J. Moyer, Judith Lanzinger and Evelyn Lundberg Stratton. Justice Maureen O'Connor entered a concurring opinion emphasizing the point that the 2002 state law on mortgage lending was intended to preclude local governments from making their own laws. "State dominance in this area is not only a historical reality but a present-day necessity," O'Connor wrote.
O'Donnell wrote that Cleveland 's more stringent regulations would forbid certain loan terms that are allowed under state law. "Accordingly, the loan regulations of the ordinances are unconstitutional," he wrote. Justices Alice Robie Resnick and Paul E. Pfeifer dissented by arguing that Ohio's longstanding "home rule" doctrine allows cities to pass tougher rules on certain matters. If it had attempted to pass weaker rules, Pfeifer wrote, Cleveland would have run afoul of the law. "I would hold that the regulation of mortgage rates is more appropriately dealt with at the local level," he wrote. The case was brought by the American Financial Services Association, a lending trade group that challenged an appeals court ruling that favored Cleveland .
In an interview, John Winship Read, attorney for the American Financial Services Association, said lenders might simply opt not to do business in a city rather than deal with a thicket of conflicting laws. "A patchwork quilt of ordinances can't exist that would cause lenders not to deal in a particular community because they would have to deal with varying ordinances," Read said. The same logic could apply to local laws on matters such as assault rifles, Read said. He pointed to Cincinnati 's assault-weapon ban, currently facing a challenge in the Ohio Supreme Court, as an example of a local law that could be superseded.
But Read said it's unlikely the case will lead to a raft of local laws being repealed, nor to an overall erosion of the locals-know-best concept embedded in the Ohio Constitution as home rule. The city of Columbus has not passed any local rules on mortgage lending. City officials were interested in the fate of the Cleveland ordinance, said Columbus City Attorney Richard C. Pfeiffer Jr. Pfeiffer said it's obvious from the ruling that cities shouldn't stick their noses into areas where state law reigns. He said there are few Columbus laws that might be repealed, most prominently the city's use of cameras to nab drivers who run red lights. A bill to ban such cameras has been introduced in the state Senate. "City councils might not like what the General Assembly has done, but if you look at the constitution and it's something the state already has addressed comprehensively, we're out of the ballgame," Pfeiffer said.