ILLINOIS SUPREME COURT TO REVIEW U.S. BANK N.A. V. CLARK
On November 24, 2004, the Illinois Supreme Court granted a group of lenders’ petition for leave to appeal U.S. Bank N.A. v. Clark, N.E.2d 1109 (Ill. App. Ct. 2004), in which the Illinois Appellate Court (First District) concluded that a 1992 amendment to Section 4.1a of the Illinois Interest Act overrode the federal preemption under Section 501 of the Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA).
The U.S. Bank case involved foreclosure actions brought by plaintiff creditors. The defendant debtors that were the subject of these actions raised counterclaims and affirmative defenses arguing that the plaintiffs violated Section 4.1a of the Illinois Interest Act by imposing fees in excess of 3% on loans with an interest rate in excess of 8%. See 815 ILCS 205/4.1a(f). The plaintiffs filed motions to dismiss that were granted because, according to the trial court, the defendants’ counterclaims and affirmative defenses under the Interest Act were preempted by the DIDMCA and, in certain cases, the federal Alternative Mortgage Transaction Parity Act of 1982 (Parity Act).
The appellate court disagreed with the trial court’s conclusion that the DIDMCA preempted Section 4.1a of the Interest Act. Section 501(a) of the DIDMCA generally preempts certain state usury laws on federally related loans secured by a first lien on residential real property. See 12 U.S.C. § 1735f-7a. Section 501(b) of the DIDMCA, however, provides that states may opt out of Section 501(a) preemption by adopting a provision of law after March 31, 1980 (i.e., the DIDMCA’s effective date) that places imitations on discount points or other charges described in Section 501(a)(1). Id.§ 1735f-7a(b)(4). According to the appellate court, Illinois did in fact take such action by passing an amended version of Section 4.1a of the Interest Act after March 31, 1980. For this reason, the appellate court held that trial court erred in dismissing the defendants’ defenses and counterclaims because they were not preempted by the DIDMCA, as the reenactment of Section 4.1a of the Interest Act overrode the federal law.
Although the issue was not directly addressed by the trial court, the appellate court also found that the defendants’ claims were not preempted by the Parity Act, which generally permits housing creditors to make alternative mortgage transactions without regard to state law. See 12 U.S.C. § 3803(c). According to the appellate court, the defendants’ claims were not preempted because preemption under the Parity Act applies only to transactions made in accordance with regulations governing alternative mortgage transactions as issued by an appropriate federal official or agency, but the section of the Interest Act under consideration does not regulate the elements of the loans that make them alternative mortgage transactions or the terms of such loans identified in regulations governing alternative mortgage transactions.
Jeffrey I. Langer and Charles V. Gall