CLEVELAND PREDATORY LENDING ORDINANCE UPHELD
December 8, 2004
The Ohio Eighth District Court of Appeals reversed the decision of the Cuyahoga County Court of Common Pleas and found the Cleveland predatory lending ordinance constitutional. American Financial Services Ass’n v. City of Cleveland, Case No. 83676 (Ohio App. Dec. 2, 2004). In determining whether the ordinance was preempted the court stated that, a municipal ordinance is preempted by state law when (i) the challenged ordinance involves the exercise of police power rather than local self-government; (ii) the statute is a general law and (iii) a conflict exists between the ordinance and state law. The court found that there is no conflict between the Cleveland Predatory Lending Ordinance and the state statutory provisions dealing with covered loans.
The court found that the state covered loans statutes set a minimum requirement and do not expressly permit or prohibit loans made at a lower threshold and do not expressly limit any of the additional requirements imposed by the City of Cleveland. With respect to the purported conflicts raised by AFSA, the court found that the state statutes are silent on the issues. The court rejected AFSA’s position that the state statutes implicitly authorized conduct which the City ordinances prohibit. Unlike other Ohio courts that have considered similar issues, the Eighth District court found that the ordinances do not permit what the statutes forbid or vice versa.
Although the City of Cleveland did not dispute the lower court finding that the provisions of Ohio law governing “covered loans” are general laws, the court examined Ohio Revised Code Section 1.63. Section 1.63 provides that the state has the sole authority to regulate the business of originating, granting, servicing and collecting loans and preempts municipal ordinances that attempt to regulate the same. The court found that Section 1.63 is not a general law and the state’s attempt to extinguish the legislative power of a municipal corporation under Section 1.63 is unconstitutional.
Although the court cited to the many Ohio statutes governing lending and extensions of credit, the court only looked to the covered loan provisions of Ohio law to find conflict.
The Cuyahoga County Court of Common Pleas had held that portions of the Cleveland predatory lending ordinance were invalid under the Ohio constitution. American Financial Services Ass’n v. City of Cleveland, Case No. 467409 (C.P. Cuyahoga Sept. 22, 2003). The Second District Court of Appeals found a similar predatory lending ordinance enacted in Dayton unconstitutional. City of Dayton v. Ohio, 2004 WL 1367067 (June 18, 2004). The City of Dayton did not appeal the decision. A similar case brought by American Financial Services Association challenging the Dayton Ordinance is pending in the Montgomery County Court of Common Pleas. American Financial Services Association v. City of Dayton, Case No. 2001 CV 03982 (C.P. Montgomery complaint filed July 30, 2001). The Lucas County Court of Common Pleas found the Toledo predatory lending ordinance unconstitutional. American Financial Services Association v. City of Toledo, Case No. CI 03-1547 (C.P. Lucas July 21,2004). The City of Toledo appealed the decision to the Seventh Court of Appeals and the appeal is pending. Thus, the Eighth District decision is the first decision upholding a local predatory lending ordinance in Ohio. It is anticipated that AFSA will appeal.
Darrell Dreher and Elizabeth Anstaett