Judge Blocks Dayton Law

Ohio state law pre-empts Dayton's predatory lending law, an Ohio judge ruled here on Aug. 26. The decision is the first in a series of court cases between cities in Ohio and the state itself over who has the legal right to regulate mortgage lending.

It will be hard for judges in Toledo and Cleveland, whose cases are pending, to ignore.

Judge Jack Davis of the Common Pleas Court in Montgomery County ruled that Dayton's claim of home rule was invalid because the state's law was one of general application. Such a law leaves no room for local laws on the same issue, thus rendering them invalid.

Since Ohio's state predatory lending law does little more than restate federal HOEPA guidelines, several Ohio cities have said that they have the constitutional right to pass their own legislation under the home rule provision of the Ohio constitution. This provision allows localities to pass laws to protect their citizens when a state law is lacking. But local laws are explicitly prohibited by the state law.

Interestingly, Judge Davis ruled that this pre-emption provision was unconstitutional. So while he did say that Ohio has the right to pre-empt local laws on mortgage regulation, he ruled that state legislators have no right to actually say so. That power is reserved for a judge.

The decision is a victory for the American Financial Services Association, a trade association who is involved in lawsuits against six cities nationwide - including Dayton, Cleveland and Toledo - in an attempt to cease local regulation of high-cost home loans.

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