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OHIO COURT OF APPEALS FINDS LOCAL PREDATORY LENDING ORDINANCE CONFLICTS WITH STATE LAW

The Court of Appeals for Montgomery County, Ohio affirmed the judgment of the trial court finding that the Dayton Predatory Lending Ordinance conflicts with Ohio law and therefore is invalid. City of Dayton v. State of Ohio, C.A. Case No. 20120 (2nd Dist. June 18, 2004).

The Court of Appeals found predatory lending laws to be general laws with state wide effect and not a local self-government issue. While acknowledging some inconsistency in Ohio Supreme Court decisions, the court decided to use a conflict analysis and adopted the conflict test in Struthers v. Sokol, 108 Ohio St. 263 (1923). Under Struthers the test is whether the ordinance permits or licenses that which the statute forbids and prohibits, and vice versa. The court concluded that as the Ohio statute has a higher threshold
for what constitutes a high cost loan than the Dayton ordinance, the only reasonable inference to be drawn is that the Ohio statute allows loans (does not consider them high cost) that the Dayton ordinance restricts. The court found that had the General Assembly intended to include loans of a lesser percentage rate within the meaning of high cost loan, it would have specifically done so. Thus, the court found that the Dayton predatory lending ordinance conflicts with Ohio’s high cost home loan provisions enacted in
H.B. 386 and that the conflicts are such that Dayton’s ordinance must be invalidated.

The court, however, stated that this does not mean that Dayton is precluded from acting in the field; it simply means that any ordinance must be tailored in a way that it will not conflict with state legislation on the subject. From this statement it is unclear if the court was rejecting the concept of field preemption, or merely found it unnecessary to reach the issue of field preemption because it found conflict preemption. Section 3 of H.B. 386 expresses the legislature’s intent to entirely preempt municipal corporations and other political subdivisions from regulation and licensing of lending and other credit activities, which expresses a legislative intent far broader than just predatory lending. The court did not address the broader scope of H.B. 386 preemption.

The court read the language in Sections 3 and 4 of H.B. 386 providing that the Ohio laws governing loans and other forms of credit are general laws that take precedence over conflicting local ordinances as comments expressing non-binding opinions of the General Assembly. Thus, the court found the statements not to violate the separation of powers doctrine as the court was not bound by the General Assembly’s opinions expressed in H.B. 386. The Ohio Constitution vests legislative power in the General Assembly, judicial power in the court and provides that the General Assembly shall not exercise any judicial power not expressly conferred. Ohio Const. Art. II, § 1; Art. IV, § 1; Art. II, § 32. The Ohio Supreme Court has stated that the power and duty of the judiciary to determine the constitutionality and, therefore, the validity of the acts of other branches of government have been firmly established as an essential feature of the Ohio system of separation of powers. State ex. rel. Ohio Academy of Trial Lawyers v. Sheward, 86 Ohio St. 3d 451, 462 (1999). Although the court indicated that it was not bound by the statements of legislative intent in H.B. 386, the court reached a conclusion consistent with the General Assembly’s statements in H.B. 386.

The decision has implications for other predatory lending ordinances in Ohio.

Darrell Dreher and Elizabeth Anstaett