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Dreher Tomkies LLP
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California Court Of Appeals Finds Oakland’s Anti-predatory Lending Ordinance Not Preempted By State Law

On September 17, 2003, a California Court of Appeals held that no part of Oaklands anti-predatory lending ordinance is preempted by state law. American Financial Services Association v. City of Oakland, Nos. A100258, A097784, 2003 WL 22138572 (Cal. Ct. App. Sept. 17, 2003). The Oakland ordinance, Oakland, Cal., Municipal. Code 5.33.010 et seq., regulates sub-prime consumer loans secured by real property located in Oakland; however, it only applies to state-licensed lending institutions and not national banks, savings and loans and credit unions. The American Financial Services Association (AFSA) had sued the city for an injunction against enforcement of the ordinance on the basis that it was preempted by state law. The trial court had found that the ordinances provision exempting federally chartered lenders was preempted by state law, and thus should be severed so that the ordinance would apply equally to both state and federally chartered lenders. The trial court ruled, however, that the remainder of the ordinance was not preempted by state law and, therefore, denied AFSAs request for injunctive relief. On appeal, the court of appeals found that the ordinance was neither preempted by state law to the extent that it exempts federally chartered lenders, nor invalidated in whole or in part on any other theory of preemption. According to the court of appeals, the ordinance is not preempted because (i) it does not contradict state law by mandating what state law expressly forbids or forbidding what state law expressly mandates, (ii) it does not impermissibly duplicate any state law (e.g., Assembly Bill 489, which also regulates sub-prime mortgage loans in California) and (iii) the California legislature did not intend to occupy the field of regulating sub-prime lending practices so as to make it exclusively a matter of state concern. For these reasons, the court of appeals reversed the trial courts judgment insofar as it ordered severance of the ordinances exemption for federally chartered lenders and dismissed AFSAs appeal from the order denying injunctive relief.

Darrell Dreher and Elizabeth Anstaett