On Friday, July 26, the Cleveland Court of Common Pleas denied a motion for a temporary restraining order and a preliminary injunction filed by the American Financial Services Association in regard to Cleveland’s predatory lending ordinance. With that denial, City Ordinance No. 737-02 takes effect. The ordinance was originally effective April 23, 2002, but enforcement was stayed pending the decision on the temporary restraining order and preliminary injunction.

    The ordinance governs “predatory loans” and prohibits certain practices, including lending without home loan counseling for the borrower on certain loans. The ordinance requires that lenders or brokers submit a certification of compliance to the Cuyahoga County Recorder’s Office for each consumer mortgage loan. The certificate would include various information about the loan, including the interest rate and total points and fees.

    Earlier this year the Ohio General Assembly enacted H.B. 386 stating that it is the intent of the General Assembly that state law solely regulate activities relating to loans and other forms of credit and that any such local regulation is preempted. The bill became effective May 24, 2002 and by its terms preempts an ordinance like Cleveland City Ordinance No. 737-02.

    AFSA has filed a motion for summary judgment in the same case on the basis that the ordinance is invalid and unconstitutional relying on H.B. 386 and the comprehensive Ohio statutory scheme governing loans and other extensions of credit. American Financial Services Association v. City of Cleveland, Case No. CV 02 467409, Court of Common Pleas, Cuyahoga County, Ohio. The motion is currently being briefed.

    We understand that a number of lenders have suspended loan origination in Cleveland as a result of the ordinance and the denial of the temporary restraining order.

    For a copy of the ordinance or guidance on compliance, please contact Elizabeth Anstaett at (614) 628-1604 or [email protected] or Darrell Dreher at (614) 628-1601 or [email protected] .