Mortgage firms sue Montgomery

Predatory lending law at issue

Friday, Feb. 17, 2006

Less than a month before Montgomery County’s predatory lending law is to take effect, a group of mortgage companies has sued the county, saying it overstepped its authority in setting lending laws.

The civil suit, filed Feb. 10 in Montgomery County Circuit Court, charges the County Council with violating state law when it passed the legislation in November, arguing that only the state has authority to regulate lending.

The county’s law was to take effect March 7. The seven companies — represented by the American Financial Services Association, a trade group — are seeking a preliminary injunction to stop the law from taking effect until the lawsuit is settled. The court is expected to decide this week whether to grant a hearing on the injunction.

AFSA is basing its complaint on a 2002 set of state laws that includes a provision that ‘‘only the State may enact a law which purports to regulate extensions of credit made by a financial institution.”

‘‘The AFSA is as opposed to discriminatory lending as the county is, but the problem is the approach,” said spokeswoman Lynne Strang. ‘‘It’s actually a lending ordinance in disguise.”

The county ordinance expands the categories of lending activities that constitute discriminatory practices and increases the damages that the Human Rights Office may award to victims. The legislation is aimed at subprime lenders, or companies that lend money to borrowers with bad credit or no established credit. Subprime loans usually carry higher interest rates and additional fees to offset the risks to the lending company. African Americans and Hispanics make up most of the subprime borrower market, and have been disproportionately affected by unfair lending practices.

County Councilman Thomas E. Perez (D-Dist. 5) of Takoma Park — lead sponsor of the bill — predicted that the lawsuit would fail.

‘‘A number of lenders have been doing the Chicken Little argument regarding local governments,” Perez said. ‘‘They want to strip the rights so that no one will have the authority to protect residents’ civil rights. It’s ironic that they come in and talk about wanting to protect people on one hand, and they spend all this money on legal fees trying to protect the status quo.”

Perez said the council received approval from its legal staff and the County Attorney’s Office before passing the law.

‘‘State law clearly allows local governments to set local legislation,” said Marc P. Hansen, the county’s lead attorney. The county differs on the interpretation on the statutes and the exceptions of the law citied by the AFSA.

The 2002 law includes a ‘‘Civil Rights Exception,” which allows local governments to enact laws ‘‘relating to fair housing or other civil rights ...”

‘‘I’m excited to make good case law to establish once and for all that local government can establish laws to protect its residents,” Perez said.

AFSA has said that if Montgomery County’s law is implemented and other jurisdictions adopt similar statutes, borrowers would suffer because legitimate lenders, faced with too many regulations, would leave the market.

‘‘The council felt that any potential benefits of prohibiting any discriminatory factor far outweighed the costs to borrowers,” Hansen said.

‘‘The lawsuit will not deter us from our educational undertakings,” said Lanta Evans-Motte, president of the Association of African American Financial Advisors. The organization sponsored a seminar this week in Wheaton as part of its anti-predatory lending campaign.

‘‘The [council’s predatory lending] legislation was a motivator for us to become involved in the initiative ... but before predatory lending came to the forefront the need for financial education was always there,” Evans-Motte said.

Seven companies — AMC Mortgage Corp., Apex Home Loans, Legacy Financial Corp., Legend Mortgage Corp., The Mortgage Link Inc., Nationwide Home Mortgage Inc. and Vision Mortgage LLC — are listed on the suit.