Court stays controversial Maryland county lending law.

A Maryland circuit court judge issued a 90-day stay, blocking implementation of a Montgomery County anti-abusive-lending ordinance, even as the Treasury Department's Office of Thrift Supervision (OTS) weighed in that the local law infringes on the federal government's authority.

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As more than two dozen mortgage lenders were poised to suspend or radically curtail operations in the affluent county adjacent to Washington, D.C., Judge Michael Mason granted the American Financial Services Association's (AFSA's) request to delay implementation of the Montgomery County law the day before its March 8 effective date until a July 6 hearing.

The Mortgage Bankers Association (MBA) lauded the judge's action. Erick Gustafson, MBA's vice president of government affairs, noted that Montgomery County's Predatory Lending Ordinance, 36-04, not only fails to add new protections for consumers, but the vaguely defined law adds "significant ambiguity" and compounds the risk for lenders in the market.

"MBA believes that the ordinance must be repealed, and the judge's ruling is an important step toward that goal," said Gustafson. "Lenders comply with the state of Maryland lending law currently in place. It provides strong protections for consumers, and the clarity and certainty that lenders need in order to conduct business."

Unlike other local so-called anti-predatory-lending laws previously enacted (and later amended or repealed) in the District of Columbia, Georgia and New Jersey, the Montgomery County ordinance is different in that it attempts to use a civil-rights exemption within Maryland's state lending law to assert its authority over lenders.

The penalty provisions of the ordinance would grant the Montgomery County Human Rights Commission "broad discretionary authority" to impose a wide variety of monetary damages for violating the ordinance, including an increase in statutory damages from $5,000 to $500,000 per violation.

Furthermore, the commission would retain the authority to provide "any other relief" that furthers the purpose of the act, which could mean additional economic damages over and above the statutory cap, explained Gustafson.

Meanwhile, in his legal opinion issued the same day as the circuit court injunction, OTS Chief Counsel John Bowman noted the county law would infringe on the mortgage lending activities of federal savings associations in contravention of federal law. The law could "significantly impact the ongoing lending operations of institutions and lending opportunities of residents in the county," said Bowman.

"OTS concluded that, to the extent the county ordinance purports to prohibit federal savings associations and their operating subsidiaries from making mortgage loans in Montgomery County that include certain lending terms outlined in the law, federal law pre-empts the local ordinance," Bowman said. "OTS has previously opined on a number of occasions that laws such as the Montgomery County ordinance are pre-empted for federal savings associations and their operating subsidiaries," he said.

MBA, which is not a party in the lawsuit against the ordinance, has called for the repeal of the Montgomery County law, while AFSA had vowed to pursue a "permanent injunction" to the ordinance.

"If the Montgomery County ordinance is allowed to go forward, it could open up the floodgates for other localities to follow suit," said AFSA in a written statement. "This, in turn, could create an untenable patchwork of thousands of municipal lending laws, lessening the important contributions lenders make to Maryland's economy and reducing the availability of credit to deserving borrowers throughout the state."