Illinois Court Ruling Upholds Pre-emption

The Illinois Supreme Court has issued a major ruling favoring banks, mortgage lenders, and trustees of securitized mortgage loans on whether a state law can severely restrict the fees that lenders can charge.The court held that the 30-year old Illinois Interest Act's limitations provision, which prohibits lenders from charging more than 3% of the principal in points and fees when the interest rate is in excess of 8%, is pre-empted by the federal Depository Institutions Deregulation and Monetary Control Act. "It's a decision the industry hoped for," said Laurence Platt, a partner with the Washington law firm of Kirkpatrick & Lockhart LLP. "It's good news for lenders, because it eliminates the exposure they thought they might have in excess of the cap. Going backwards, many thought their loans on the subprime side had been unlawfully originated. It helps lenders going forward by enabling them to originate loans without artificial price restriction." The court's ruling in U.S. Bank National Association v. Michael Clark reversed an appellate court decision that held that Illinois lawmakers had opted out of the pre-emption clause under the federal law. Dianne Rist, a partner at Chapman & Cutler who coordinated the defense, said the decision "should bring to an end a cottage industry of lawsuits against lenders in Illinois that has arisen since the appellate court's decision upheld the Interest Act's limitation on points and fees for residential mortgage loans."