NEWS FROM THE CITY CLERK'S OFFICE
MEDIA ADVISORY

June 24, 2002

COURT UPHOLDS OAKLAND’S LANDMARK PREDATORY LENDING LAW

OAKLAND, CA – The constitutionality of Oakland's landmark anti-predatory home loan ordinance has been upheld by a Superior Court judge, making Oakland the first city in the nation to successfully enact lending safeguards to protect its residents.

"The Court agrees with Oakland," Alameda County Superior Court Judge James A. Richman said in a ruling made Friday but not released until Monday.

The ordinance, unanimously passed by the Oakland City Council on October 2, 2001, was immediately challenged by the American Financial Services Association (AFSA), a trade group for the subprime lending industry.

AFSA went to court asking for summary judgement, declaring the ordinance invalid and seeking an injunction permanently enjoining Oakland from enforcing it. In its main argument, AFSA said the ordinance was preempted by state legislation passed and signed into law last year. However, Judge Richman ruled the ordinance was not preempted by state law and that the Oakland City Council had a right to protect its citizens independent of state law.

The Oakland City Attorney's Office and the Burlingame law firm Cotchett, Pitre, Simon & McCarthy defended the constitutionality of the ordinance before the court.

"This is a landmark ruling for the City of Oakland and other California cities that enact ordinances to protect their citizens from being gouged by unscrupulous lenders," City Attorney John Russo said. Calling predatory lending "unconscionable and malicious," Russo also said that "this case was being watched by cities across the state and now sets the precedent for others to follow."

Joseph W. Cotchett, partner of Cotchett, Pitre, Simon & McCarthy who argued the matter for the City of Oakland, said the court ruling "ends the practice of lenders targeting homeowners in Oakland's low-income and minority communities, particularly elderly persons living alone, for abusive loans. The City of Oakland, the City Council, John Russo, and his staff had the courage to successfully wage this fight for the right of cities to protect their residents."

The Oakland ordinance, the first local law in California to address the growing problem of predatory home mortgage lending, prohibits a number of abusive lending terms and practices for home mortgage loans, especially high-cost homes loans that charge high interest rates or points and fees. One of its most important aspects requires borrowers to receive independent loan counseling prior to closing a high-cost home loan.

The Oakland ordinance is simply additional requirements that lenders must obey if they want to do business in Oakland. The key to the ordinance is city-sponsored debt counseling to help residents with loans before they pledge their houses as security for high interest loans.