Filed 1/31/05
IN THE SUPREME COURT OF CALIFORNIA
AMERICAN FINANCIAL SERVICES
ASSOCIATION, )
Plaintiff and Appellant,
S119869
v.
Ct.App.
1/1
CITY OF OAKLAND et al.,
A100258 & A097784
Alameda
County
Defendants and Appellants.
) Super.
Ct.
No.
2001-027338
“Predatory lending” is a term generally used to characterize a range of
abusive and aggressive lending practices, including deception or fraud, charging
excessive fees and interest rates, making loans without regard to a borrower’s
ability to repay, or refinancing loans repeatedly over a short period of time to incur
additional fees without any economic gain to the borrower. Predatory lending is
most likely to occur in the rapidly growing “subprime” mortgage market, which is
a market generally providing access to borrowers with impaired credit, limited
income, or high debt relative to their income. Mortgages in this market tend to be
in smaller amounts, and with faster prepayments and significantly higher interest
rates and fees, than “prime” mortgages.
1
In 2001, California enacted legislation to combat predatory lending practices
that typically occur in the subprime home mortgage market. (Fin. Code,1 §§ 4970-
4979.8 (Division 1.6).)2 Eight days before Division 1.6 was signed into law by the
Governor, the City of Oakland adopted an ordinance regulating predatory lending
practices in the Oakland home mortgage market.3
We consider whether the Ordinance is preempted by Division 1.6, and if not,
whether the Ordinance is nevertheless preempted by Civil Code section 1916.12.
We conclude that the Ordinance is preempted by Division 1.6, and therefore
reverse the judgment of the Court of Appeal.
I. FACTUAL AND PROCEDURAL BACKGROUND4
On October 15, 2001, American Financial Services Association (AFSA) filed
this action against the City of Oakland and the Redevelopment Agency of the City
of Oakland (City) seeking a declaration that the Ordinance was preempted by state
law, and an injunction against its enforcement. On October 25, 2001, by
1
All further undesignated statutory references are to this code.
2
Assembly Bill No. 489 (2001–2002 Reg. Sess.) added Division 1.6. (Stats.
2001, ch. 732, §§ 1, 3-5.) A trailer bill, Assembly Bill No. 344 (2001–2002 Reg.
Sess.), made certain changes to Division 1.6. (Stats. 2001, ch. 733, §§ 1–10.)
Both bills were signed into law on October 10, 2001.
3
Oakland’s “Anti-Predatory Lending Ordinance” (Ord. No. 12361 CMS) is
codified at Oakland Municipal Code chapter 5.33 (Ordinance). The City of
Oakland also amended its linked banking services ordinance to require lenders
seeking to do business with the City or participate in certain projects or programs
that involved the City, to certify that neither they nor their affiliates engage in
predatory lending practices, and adopted a resolution seeking a similar
certification from financial institutions desiring to participate in any development
projects financed by the Redevelopment Agency. There is no dispute that the
validity of the other measures depends on the validity of the Ordinance, and we do
not discuss them further.
4
Because there was no petition for rehearing in the Court of Appeal, we take
our statement of facts largely from that court’s opinion. (Cal. Rules of Court, rule
28(c)(2); People v. Hernandez (2004) 33 Cal.4th 1040, 1045.)
2
stipulated order, the Ordinance was stayed pending, as relevant here, final
resolution of this action. In December 2001, the trial court denied AFSA’s motion
for a preliminary injunction against enforcement of the Ordinance, and AFSA
appealed from that order.
The parties then filed cross-motions for summary judgment. On June 21,
2002, the trial court entered an order finding that the Ordinance was preempted to
the extent that it exempted federally chartered lending institutions from its
restrictions. The court held that the sentence exempting such institutions should
be severed from the Ordinance. Subject to elimination of the federal exemption,
the court denied AFSA’s summary judgment motion and granted the City’s.
Judgment was entered severing the sentence exempting federal lenders, dismissing
AFSA’s complaint, and deeming the Ordinance valid as modified.
AFSA appealed from the judgment, and the City cross-appealed. The Court
of Appeal ordered the appeals and cross-appeal consolidated. The court held the
Ordinance was not preempted by either Division 1.6 or Civil Code section
1916.12. It reversed the trial court’s judgment insofar as it ordered severance of
the portion of the Ordinance exempting federally chartered lenders from its
coverage. In all other respects, the judgment was affirmed. AFSA’s appeal from
the denial of its motion for a preliminary injunction was dismissed as moot.
We granted AFSA’s petition for review.
II. DISCUSSION
A. Background
According to its legislative history, the purpose of Division 1.6 was to
regulate and thereby curtail predatory lending practices that typically occur in the
3
subprime mortgage market.5 Division 1.6 applies to any “covered loan,” which is
a “consumer loan in which the original principal balance of the loan does not
exceed” $250,000 “in the case of a mortgage or deed of trust,” and either of two
conditions are met.6 (§ 4970, subd. (b)(1)(A), (B).) A “consumer loan” is defined
as “a consumer credit transaction that is secured by real property located in this
state used, or intended to be used or occupied, as the principal dwelling of the
consumer that is improved by a one-to-four residential unit.” (§ 4970, subd. (d).)
A consumer loan does not include a bridge loan, a reverse mortgage, an open line
of credit as defined by federal regulation, or a “consumer credit transaction that is
secured by rental property or second homes.” (§ 4970, subd. (d).)
Division 1.6 contains numerous prohibitions and limitations with respect to
covered loans. For example, a person who originates covered loans shall not (1)
“make a covered loan that finances points and fees in excess of” the higher of
5
Division 1.6 does not use the term “subprime,” and the term has no
standard industry definition. (U.S. Dept. of the Treasury & U.S. Dept. of Housing
and Urban Development, Joint Rep., Curbing Predatory Home Mortgage Lending
(June 2000) p. 27.) It generally, however, refers to loans in smaller amounts, with
significantly higher interest rates and fees, and faster prepayments, than “prime
loans.” (Id. at p. 28.) “Predatory lending occurs primarily in the subprime
mortgage lending market.” (Id. at p. 2.) Both Division 1.6 and the Ordinance
address predatory practices regarding such high-cost loans, and the legislative
history of Division 1.6 is replete with references to “subprime” lending.
Therefore, like the Court of Appeal, we will at times refer to both the Ordinance
and Division 1.6 as regulating predatory practices in the “subprime” mortgage
market.
6
“For a mortgage or deed of trust, the annual percentage rate at
consummation of the transaction will exceed by more than eight percentage points
the yield on Treasury securities having comparable periods of maturity on the 15th
day of the month immediately preceding the month in which the application for
the extension of credit is received by the creditor” or the “total points and fees
payable by the consumer at or before closing for a mortgage or deed of trust will
exceed 6 percent of the total loan amount.” (§ 4970, subd. (b)(1)(A), (B).)
4
$1,000 or 6 percent of the original principal balance, exclusive of points and fees
(§ 4979.6); (2) “make or arrange a covered loan unless at the time the loan is
consummated, the person reasonably believes the consumer . . . will be able to
make the scheduled payments to repay the obligation based” on specified factors
(§ 4973, subd. (f)(1)); (3) “pay a contractor under a home-improvement contract
from the proceeds of a covered loan other than by an instrument payable to the
consumer,” both the consumer and the contractor, or under certain circumstances
to a third party escrow agent (id., subd. (g)); (4) “recommend or encourage a
consumer to default on an existing consumer loan or other debt in connection with
the solicitation or making of a covered loan that refinances all or any portion of
the existing consumer loan or debt” (id., subd. (h)); (5) “refinance or arrange for
the refinancing of a consumer loan such that the new loan is a covered loan that is
made for the purpose of refinancing, debt consolidation or cash out, that does not
result in an identifiable benefit to the consumer” after considering various factors
(id., subd. (j)); (6) “steer, counsel, or direct any prospective consumer to accept a
loan product with a risk grade less favorable than the risk grade that the consumer
would qualify for” based on certain information (id., subd. (l)(1)); (7) “finance,
directly or indirectly, into a consumer loan or finance to the same borrower within
30 days of a consumer loan any credit life, credit disability, credit property, or
credit unemployment insurance premiums, or any debt cancellation or suspension
agreement fees, provided that credit insurance premiums, debt cancellation, or
suspension fees calculated and paid on a monthly basis shall not be considered
financed by the person originating the loan” (§ 4979.7); (8) structure a loan
transaction as an open-end credit plan for the purpose of evading Division 1.6 if
the “loan would have been a covered loan if the loan had been structured as a
closed end loan” (§ 4973, subd. (m)(1)); (9) divide any loan transaction into
separate parts for the purpose of evading Division 1.6 (id., subd. (m)(2)); or
5
(10) “act in any manner, whether specifically prohibited by this section or of a
different character [sic], that constitutes fraud” (§ 4973, subd. (n)).
Moreover, a covered loan shall not (1) include a “prepayment fee or penalty
after the first 36 months after the date of” loan consummation, but “may include a
prepayment fee or penalty up to the first 36 months after the date of” loan
consummation under certain conditions (§ 4973, subd. (a)); (2) “contain a
provision for negative amortization such that the payment schedule for regular
monthly payments causes the principal balance to increase, unless the covered
loan is a first mortgage” and appropriate disclosure made (id., subd. (c)); (3)
“include terms under which periodic payments required under the loan are
consolidated and paid in advance from the loan proceeds” (id., subd. (d));
(4) “contain a provision that increases the interest rate as a result of a default”
except under certain circumstances (id., subd. (e)); (5) generally “contain a call
provision that permits the lender, in its sole discretion, to accelerate the
indebtedness” (id., subd. (i)); or (6) be made unless a seven-paragraph disclosure
form set forth in section 4973, subdivision (k)(1), which includes encouragement
to the borrower to consider financial counseling, is provided to the consumer no
later than three business days before signing of the loan documents. A “covered
loan with a term of 5 years or less may not provide at origination for a payment
schedule with regular periodic payments that when aggregated do not fully
amortize the principal balance as of the maturity date of the loan.” (§ 4973, subd.
(b)(1).) “For a payment schedule that is adjusted to account for the seasonal or
irregular income of the consumer, the total installments in any year shall not
exceed the amount of one year’s worth of payments on the loan.” (§ 4973, subd.
(b)(2).) In addition, a “person who provides brokerage services to a borrower in a
covered loan transaction by soliciting lenders or otherwise negotiating a consumer
loan secured by real property, is the fiduciary of the consumer, and any violation
6
of the person’s fiduciary duties shall be a violation of” section 4979.5. (§ 4979.5,
subd. (a).) “Except for a broker or a person who provides brokerage services,”
however, “no licensed person or subsequent assignee shall have administrative,
civil, or criminal liability for a violation of” section 4979.5. (§ 4979.5, subd. (b).)
Similarly, the Ordinance regulates predatory lending practices in home loans
in Oakland. (Oak. Mun. Code, §§ 5.33.010, 5.33.030.) A “home loan” does not
include a reverse mortgage, and is defined as a “loan of money, including without
limitation a line of credit or an open-end credit plan,” if certain criteria apply. (Id.,
§ 5.33.030.) One criteria is that the “principal amount of the loan does not exceed
the current conforming first mortgage loan size limit for a single-family dwelling
as established by the Federal National Mortgage Association.” (Ibid.) Since
January 1, 2005, that amount has been $359,650.7 In addition, the borrower must
incur the loan primarily for personal, family, or household uses, and the loan must
be secured in whole or in part by a deed of trust, mortgage, or similar security
device on real property located within Oakland. (Oak. Mun. Code, § 5.33.030.)
The real property must (or will) contain either one-to-four residential units or
“individual residential units of condominiums or cooperatives,” one of which is or
will be the borrower’s principal dwelling. (Ibid.)
A “high-cost” home loan is a home loan that meets one of two specified
thresholds.8 (Oak. Mun. Code, § 5.33.030.) The Court of Appeal observed that
7 (Http://www.fanniemae.com/aboutfm/loanlimits.jhtml?p=About
+Fannie+Mae&s=Loan+Limits [as of Jan. 31, 2005].)
8
The “the annual percentage rate of the loan equals or exceeds (a) by more
than 3 percentage points, if the home loan is a first mortgage, or (b) by more than
5 percentage points, if the home loan is a junior mortgage, the rate set by the
required net yield for a 90-day standard mandatory delivery commitment for a first
mortgage loan from either the Federal National Mortgage Association or the
Federal Home Loan Mortgage Association, whichever is greater, as such yield is
(footnote continued on next page)
7
the “ ‘high-cost home loan’ interest rate and fee thresholds are both lower than the
threshold levels for ‘covered loans’ set by [Division 1.6]. . . .” “[I]t is undisputed
that the high-cost loan provisions of the Ordinance would apply to all home loans
falling under the ‘covered loan’ provisions of the state statute, and also reach some
loans that do not come under the state law provisions.”
Like Division 1.6, the Ordinance contains numerous prohibitions and
limitations with respect to home loans and “high-cost” home loans. The
Ordinance prohibits prepayment penalties for high-cost and certain refinanced
home loans, and limits prepayment penalties for other home loans. (Oak. Mun.
Code, § 5.33.040(A).) For home loans generally, no lender may (1) “finance any
credit life, credit disability, credit property, or credit unemployment insurance, or
any other life or health insurance premiums when making a home loan”; (2)
“recommend or encourage a borrower to default or not to make a payment on a
(footnote continued from previous page)
reported on the fifteenth day of the month immediately preceding the month in
which the application for the home loan is received by the lender; or (2) the total
points and fees on the loan equal or exceed either 5% of the total loan amount or
$800, whichever amount is greater. If the terms of the home loan provide for an
initial or introductory period during which the annual percentage rate is lower than
that which will apply after the end of such initial or introductory period, then the
annual percentage rate to be considered for purposes of this definition is the rate
which applies after the initial or introductory period. If the terms of the home loan
provide for an annual percentage rate that varies in accordance with an index plus
a margin, then the annual percentage rate to be considered for purposes of this
definition is the rate that is in effect on the date of loan consummation. In the case
of a home loan with a regular interest rate that varies in accordance with an index
plus a margin, but with an initial or introductory interest rate established in some
other manner, the annual percentage rate to be considered is the rate that would
have been in effect on the date of loan consummation were the regular rate
determined by the index plus the margin to apply, that is, the fully-indexed rate on
the date of loan consummation.” (Oak. Mun. Code, § 5.33.030.)
8
home loan or any other debt, when such lender action is in connection with the
closing or planned closing of a home loan that refinances all or part of the
borrower’s debt”; or (3) “make a home loan that violates any applicable provision”
of certain federal laws regulating lending. (Oak. Mun. Code, § 5.33.040(B), (C),
(D).)
In addition, the following practices are prohibited for high-cost home loans:
(1) making the loan without obtaining written certification from an independent
and approved housing or credit counselor that the borrower has contacted the
counselor and either received counseling about the advisability of the loan
transaction or waived in writing the counseling option; (2) making a loan unless
the lender reasonably believes the borrower will be able to make the scheduled
payments based on certain detailed criteria; (3) financing points and fees
exceeding $800 or 5 percent of the loan amount, whichever is greater; (4) making
a loan “that includes terms under which more than two periodic payments required
under the loan are consolidated and paid in advance from the loan proceeds
provided to the borrower”; (5) charging a fee to modify, renew, extend, or amend
a loan or defer any payment, except under certain conditions; (6) including terms
that allow the lender to accelerate the indebtedness in its discretion except for
certain circumstances; (7) including a provision increasing the interest rate if the
borrower defaults or is delinquent, except in certain circumstances; (8) making a
loan that “pays off all or part of an existing home loan or other debt of the
borrower, and the borrower does not receive a reasonable and tangible net benefit
from the new high-cost home loan considering all the circumstances,” as
delineated; and (9) making a loan that “pays off all or part of an existing home
loan, and such existing loan” is a specified government or nonprofit loan unless an
independent housing or credit counselor has determined that the refinance is in the
borrower’s best interests. (Oak. Mun. Code, § 5.33.050.)
9
Thus, Division 1.6 and the Ordinance are similar in that they regulate the
same subject matter, i.e., predatory lending practices in home mortgages.
However, Division 1.6 and the Ordinance differ in significant respects with regard
to how they regulate these predatory practices. For example, Division 1.6 does
“not impose liability on an assignee that is a holder in due course” and the
provisions of the division do not apply to “persons chartered by Congress to
engage in secondary mortgage market transactions.” (Fin. Code, § 4979.8.) The
Ordinance expressly applies to a holder in due course. (Oak. Mun. Code,
§ 5.33.070 [“Any person who purchases or is otherwise assigned a home loan is
subject to all claims, actions and defenses related to that home loan that the
borrower, the City Attorney, or others could assert against the original lender”].)
Moreover, Division 1.6 permits prepayment penalties under certain conditions
during the first 36 months of the loan; the Ordinance prohibits them for all high-
cost and certain refinanced home loans, and limits them for other home loans.
(Fin. Code, § 4973, subd. (a); Oak. Mun. Code, § 5.33.040(A).) In addition,
Division 1.6 requires that borrowers be encouraged in writing to seek loan
counseling; the Ordinance prohibits a high-cost home loan being made without
either the borrower receiving loan counseling or giving the credit counselor a
written waiver of counseling. (Fin. Code, § 4973, subd. (k)(1); Oak. Mun. Code,
§ 5.33.050(A).)
In addition to other enforcement mechanisms, Division 1.6 and the
Ordinance both allow for civil and criminal penalties and for civil enforcement by
borrowers, including punitive damages. (Fin. Code, §§ 4975, subd. (c), 4977,
subds. (b), (c), 4978, subds. (a), (b)(2); Oak. Mun. Code, §§ 5.33.080, 5.33.100.)
However, Division 1.6 imposes civil penalties up to $25,000 per violation; the
Ordinance imposes such penalties up to the amount of $50,000. (Fin. Code,
§ 4977, subd. (b); Oak. Mun. Code, § 5.33.080(D).) Under Division 1.6, the
10
amounts collected from such civil penalties are to be used by the “licensing
agency, subject to appropriation by the Legislature, for the purposes of education
and enforcement in connection with abusive lending practices.” (Fin. Code,
§ 4977, subd. (g).) The amounts collected by the Ordinance presumably simply go
into the city coffers. Punitive damages are available under Division 1.6 “upon a
finding that such damages are warranted pursuant to Section 3294 of the Civil
Code,” which requires “clear and convincing evidence that the defendant has been
guilty of oppression, fraud, or malice” (Civ. Code, § 3294, subd. (a)); the
Ordinance allows punitive damages “if the court determines by clear and
convincing evidence that the lender has shown reckless disregard for the rights of
the borrower.” (Fin. Code, § 4978, subd. (b)(2); Oak. Mun. Code,
§ 5.33.080(A)(5).) Division 1.6 provides that nothing in section 4978, which
addresses civil liability, “is intended, nor shall be construed, to abrogate existing
common law provisions prohibiting double recovery of damages.” (Fin. Code,
§ 4978, subd. (c).) The Ordinance, however, expressly notes its remedies “are
cumulative. The protections and remedies provided under this chapter are in
addition to other protections and remedies that may be otherwise available under
law. Nothing in this chapter is intended to limit the rights of any injured person to
recover damages or pursue any other legal or equitable action under any other
applicable law or legal theory.” (Oak. Mun. Code, § 5.33.080(E).)
We now turn to the question of whether these similarities and differences
may coexist or, if instead, the Ordinance is preempted by Division 1.6.
B. Analysis
“Under article XI, section 7 of the California Constitution, ‘[a] county or city
may make and enforce within its limits all local, police, sanitary, and other
ordinances and regulations not in conflict with general laws.’ ” (Sherwin-Williams
11
Co. v. City of Los Angeles (1993) 4 Cal.4th 893, 897 (Sherwin-Williams).) In
addition, charter cities such as Oakland may adopt and enforce ordinances that
conflict with general state laws, provided the subject of the regulation is a
“municipal affair” rather than one of “statewide concern.” (Cal. Const., art. XI,
§ 5;9 Oak. City Charter, § 106; see Johnson v. Bradley (1992) 4 Cal.4th 389, 399.)
Here, however, the City reasonably concedes regulation of predatory practices in
mortgage lending is one of statewide concern. Under these circumstances, the
parties agree that if the Ordinance conflicts with state law, it is preempted.
A conflict between state law and an ordinance exists if the ordinance
duplicates or is coextensive therewith, is contradictory or inimical thereto, or
enters an area either expressly or impliedly fully occupied by general law.
(Sherwin-Williams, supra, 4 Cal.4th at pp. 897-898.) Relying solely on the
Legislature’s failure to include express preemption language and the unique local
interests of Oakland, the City contends that Division 1.6 sets only “statewide
minimum standards, not statewide uniform standards, for subprime home
mortgage lending.” We conclude that in enacting Division 1.6 the Legislature has
impliedly fully occupied the field of regulation of predatory practices in home
mortgage lending, and hence the Ordinance is preempted on this ground.
“[I]t is well settled that local regulation is invalid if it attempts to impose
additional requirements in a field which is fully occupied by statute.” (Tolman v.
Underhill (1952) 39 Cal.2d 708, 712 (Tolman).) “[L]ocal legislation enters an
9
California Constitution, article XI, § 5, subdivision (a) provides: “It shall
be competent in any city charter to provide that the city governed thereunder may
make and enforce all ordinances and regulations in respect to municipal affairs,
subject only to restrictions and limitations provided in their several charters and in
respect to other matters they shall be subject to general laws. City charters
adopted pursuant to this Constitution shall supersede any existing charter, and with
respect to municipal affairs shall supersede all laws inconsistent therewith.”
12
area that is ‘fully occupied’ by general law when the Legislature has expressly
manifested its intent to ‘fully occupy’ the area [citation], or when it has impliedly
done so in light of one of the following indicia of intent: ‘(1) the subject matter
has been so fully and completely covered by general law as to clearly indicate that
it has become exclusively a matter of state concern; (2) the subject matter has been
partially covered by general law couched in such terms as to indicate clearly that a
paramount state concern will not tolerate further or additional local action; or (3)
the subject matter has been partially covered by general law, and the subject is of
such a nature that the adverse effect of a local ordinance on the transient citizens
of the state outweighs the possible benefit to the’ locality [citations].” (Sherwin-
Williams, supra, 4 Cal.4th at p. 898.)
Here, of course, there is no express preemption language in Division 1.6.
However, there are clear indications of the Legislature’s implicit intent to fully
occupy the field of regulation of predatory lending tactics in home mortgages.
“Where the Legislature has adopted statutes governing a particular subject
matter, its intent with regard to occupying the field to the exclusion of all local
regulation is not to be measured alone by the language used but by the whole
purpose and scope of the legislative scheme.” (Tolman, supra, 39 Cal.2d at p.
712; Wilson v. Beville (1957) 47 Cal.2d 852, 859 (Wilson) [same]; In re Lane
(1962) 58 Cal.2d 99, 102-103 (Lane).) “State regulation of a subject may be so
complete and detailed as to indicate an intent to preclude local regulation.
[Citations.] In this connection it may be significant that the subject is one which
. . . requires uniform treatment throughout the state.” (Chavez v. Sargent (1959)
52 Cal.2d 162, 177 (Chavez), disapproved on other grounds in Petri Cleaners, Inc.
v. Automotive Emp., Laundry Drivers and Helpers (1960) 53 Cal.2d 455, 474-
475.)
13
“The denial of power to a local body when the state has preempted the field
is not based solely upon the superior authority of the state. It is a rule of necessity,
based upon the need to prevent dual regulations which could result in uncertainty
and confusion. Thus, the term ‘conflict’ as used in section 11 of article XI has
been held not to be limited to a mere conflict in language, but applies equally to a
conflict of jurisdiction.” (Abbott v. City of Los Angeles (1960) 53 Cal.2d 674,
682.) “Whenever the Legislature has seen fit to adopt a general scheme for the
regulation of a particular subject, the entire control over whatever phases of the
subject are covered by state legislation ceases as far as local legislation is
concerned.” (Lane, supra, 58 Cal.2d at p. 102; id. at p. 105 [“where the state has
fully occupied the field, there is no room for additional requirements by local
legislation”]; Wilson, supra, 47 Cal.2d at p. 859 [“general rule that charter
provisions cannot control in matters of statewide concern where the state has
occupied the field”].) “Where a statute and an ordinance are identical it is obvious
that the field sought to be covered by the ordinance has already been occupied by
state legislation.” (Pipoly v. Benson (1942) 20 Cal.2d 366, 371.)
Thus, in Wilson, supra, 47 Cal.2d at page 856, we held that a person seeking
compensation for a municipal taking does not lose his claim by failing to file it
with the city as required by the city charter. We observed, the “exercise of the
power of eminent domain is a matter of statewide concern.” (Id. at p. 859.) “The
Legislature has provided a complete and detailed system for exercising the right of
eminent domain and assessing compensation,” such that charter provisions making
more onerous the recovery of compensation were invalid. (Id. at pp. 859-861; id.
at p. 860 [“The Legislature has fully occupied the field of eminent domain”].) “If
the city may enact such legislation or charter provisions the land owner is denied
equal protection of the laws for the state statute would fix the limitation where the
condemnor was a public utility but a different one would prevail where the
14
condemnor was a municipal corporation. There is no distinction between such
condemnors. The city along with public utilities are made equally liable by the
Constitution.” (Id. at p. 861.)
Similarly, in Eastlick v. City of Los Angeles (1947) 29 Cal.2d 661, 664-665
(Eastlick), the plaintiff’s claim in a personal injury action based on state law
“concededly was complete as measured by the requirements of the state law.”
However, the city argued judgment in plaintiff’s favor should be reversed because
of her failure to itemize the damages in her claim as required by the city charter.
(Id. at pp. 664-665.) We held that the Legislature had provided “a general scheme
for the presentation of such liability claims to be effective throughout the state. . . .
[W]ith respect to the subjects covered, the [state] statute occupies the entire field
and it impliedly precludes control to that extent by municipal or local regulation.”
(Id. at p. 666.) A municipality “may not impose more onerous conditions
affecting any other matter covered by the statute, such as the contents of the
claim.” (Id. at p. 667.) “[T]he provisions of that statute ‘are exclusive’ in
regulating the presentation of claims arising under the Public Liability Act, and no
city charter provisions relating to the presentation of claims whether adopted
before or after the effective date of the statute, are applicable within the field
covered thereby.” (Id. at p. 668.)
Likewise in Birkenfeld v. City of Berkeley (1976) 17 Cal.3d 129, 152
(Birkenfeld), we held that a charter city’s “requirement that landlords obtain
certificates of eviction before seeking repossession of rent-controlled units cannot
stand in the face of state statutes that fully occupy the field of landlord’s
possessory remedies.” We observed that requiring “landlords to fulfill the
elaborate prerequisites for the issuance of a certificate of eviction by the rent
control board before they commence the [state] statutory proceeding would nullify
the intended summary nature of the remedy.” (Id. at p. 151.) Citing Wilson,
15
supra, 47 Cal.2d 852, and Eastlick, supra, 29 Cal.2d 661, we also noted that
“[c]ity charter provisions purporting to impose far less burdensome prerequisites
upon the exercise of statutory remedies have been held to be invalid invasions of
the field fully occupied by the statute.” (Birkenfeld, at p. 152; Healy v. Industrial
Acc. Com. (1953) 41 Cal.2d 118, 122 [If “there is any conflict between charter
provisions and the compensation sections of the Labor Code, the latter must
prevail. Under power expressly granted to it by the Constitution, the Legislature
has established a complete system of workmen’s compensation which obviously is
a subject of state-wide concern, and it is well settled that in such matters the
general law is paramount”]; Lane, supra, 58 Cal.2d at pp. 103-105 [“city
ordinance attempting to make sexual intercourse between persons not married to
each other criminal is in conflict with the state law and is void” given the “Penal
Code sections covering the criminal aspects of sexual activity are so extensive in
their scope that they clearly show an intention by the Legislature to adopt a
general scheme for the regulation of this subject,” and “although living in a state
of cohabitation and adultery is prohibited [citation], neither simple fornication or
adultery alone nor living in a state of cohabitation and fornication has been made a
crime in this state”]; Issac v. City of Los Angeles (1998) 66 Cal.App.4th 586, 599
(Issac) [ordinance giving a utility lien priority over other recorded liens invalid
“because it disrupts California’s statewide statutory scheme of lien priority”]; id.
at p. 600 [“lien priorities on real property a matter of statewide concern because
statewide uniformity in lien priority is essential”].)
Like the statutory schemes considered in Wilson, Eastlick, and Birkenfeld,
Division 1.6 comprehensively regulates predatory lending practices in home
mortgages. It delineates at length what mortgages are covered, what lending acts
are prohibited, who can be held liable for violations of Division 1.6, the various
enforcement mechanisms available, who may invoke such enforcement
16
mechanisms, and defenses to such violations. The provisions of Division 1.6 “are
so extensive in their scope that they clearly show an intention by the Legislature to
adopt a general scheme for the regulation of” predatory lending tactics in home
mortgages. (Lane, supra, 58 Cal.2d at p. 103.)
Moreover, in regulating such lending tactics in home mortgages, the
Legislature was not suddenly entering an area previously governed by
municipalities and unexplored at a statewide level. To the contrary, as the City
acknowledges, regulation of mortgage lenders has historically occurred at the
state, not the municipal, level. (See, e.g., Fin. Code, §§ 5000 et seq. [Savings
Association Law], 50000 et seq. [California Residential Mortgage Lending Act];
Civ. Code, §§ 2947-2955.5 [mortgage of real property provisions].) In
determining whether the Legislature intended to occupy the field of regulation of
predatory home mortgage lending, we consider this historical role, and view
Division 1.6 not in isolation, but as part of an overall legislative scheme
addressing mortgage lending. As the Legislative Counsel’s Digest to Division 1.6
notes, “Existing law provides for regulation of banks and savings associations by
the Department of Financial Institutions. Existing law provides for regulation of
real estate brokers by the Department of Real Estate. Existing law provides for
regulation of finance lenders and residential mortgage lenders by the Department
of Corporations. Existing law provides that willful violations of provisions
governing savings associations, real estate brokers, and residential mortgage
lenders are crimes. [¶] This bill would impose various requirements on consumer
loans secured by specified real property, defined as ‘covered loans.’ ” (Stats.
2001, ch. 732.)
Indeed, when asked at oral argument, the City could point to no other
instance in over 150 years of state history where a municipality had attempted to
regulate mortgage lending. Thus, state activity in the area of regulation of
17
mortgage lending was not only historically dominant, it was exclusive. (Cf.
United States v. Locke (2000) 529 U.S. 89, 108 [finding no presumption against
federal preemption regarding regulation of maritime commerce]; compare Bronco
Wine Co. v. Jolly (2004) 33 Cal.4th 943, 974 [strong presumption against federal
preemption of state wine label regulation given state activity in this area
historically extensive and dominant].) Thus, mortgage lending is unlike the area
of gun control law, on which the City and the dissent rely, in which courts have
concluded that the Legislature has chosen to legislate narrowly, and “rather than
intending to deprive municipalities of their police power to regulate handgun sales,
. . . has been cautious about depriving local municipalities of aspects of their
constitutional police power to deal with local conditions.” (Calif. Rifle & Pistol
Assn., Inc. v. City of West Hollywood (1998) 66 Cal.App.4th 1302, 1318; see
Great Western Shows, Inc. v. County of Los Angeles (2002) 27 Cal.4th 853, 865,
866 (Great Western) [noting state laws regulating gun shows expressly refer to
applicable local laws]; dis. opn., post, at pp. 4, 10.) As one amicus curiae notes,
the City does not demonstrate that in the area of regulating residential mortgages,
the Legislature has attempted “to tread lightly on a narrow path.”
Moreover, it is beyond peradventure that effective regulation of mortgage
lending, and in particular here abusive practices in such lending, “requires uniform
treatment throughout the state.” (Chavez, supra, 52 Cal.2d at p. 177; see Northern
Calif. Psychiatric Society v. City of Berkeley (1986) 178 Cal.App.3d 90, 101
[“ ‘Certain areas of human behavior command statewide uniformity, especially the
regulation of statewide commercial activities’ ”].) California’s housing market is
one of its most critical, and securities based on home loans in this market are sold
not only on a statewide, but on a national level. (Eggert, Held Up in Due Course:
Predatory Lending, Securitization, and the Holder in Due Course Doctrine (2002)
35 Creighton L. Rev. 503, 536 [“Through securitization, the source of capital for
18
mortgage funding has been transferred from the savings industry, which used
deposits to fund loans, to the capital markets and the portfolios of institutional
investors”].) Commercial reality today would confound any effective regulation
of mortgage lending based on potentially hundreds of competing and inconsistent
measures at the local level. Rather, centralized command over such mortgage
lending practices provides an essential “regulatory lever.” (Calif. Fed. Savings &
Loan Assn. v. City of Los Angeles (1991) 54 Cal.3d 1, 23 (Calif. Fed.).)
We therefore conclude that through the enactment of Division 1.6, the
Legislature has fully occupied the field of regulation of predatory tactics in home
mortgages. While in other cases the determination of whether the state and local
laws occupy the same “field” may be somewhat nuanced, little is left to the
imagination of even the most casual reader here. Both Division 1.6 and the
Ordinance regulate predatory lending tactics in home mortgages, and do so in
parallel fashion. The Ordinance, like Division 1.6, addresses at length what
mortgages are covered, what lending acts are prohibited, who can be held liable
for violations of the Ordinance, the various enforcement mechanisms available,
who may invoke such enforcement mechanisms, and defenses to such violations.
As previously observed, it is undisputed the Ordinance applies to at least all home
loans covered by Division 1.6. Moreover, the Ordinance regulates many of the
same predatory practices addressed by Division 1.6, and prevalent in subprime
lending, such as excessive prepayment fees, making loans without any reasonable
expectation they can be repaid, refinancing with no benefit to the borrower,
encouraging default on an existing loan in connection with refinancing that loan,
financing unnecessary products such as credit insurance, unfairly accelerating
indebtedness, and financing excessive points and fees. Thus, the Ordinance is not
supplementary legislation that in other contexts might be allowed, but a line item
veto of those policy decisions by the Legislature with which the City disagrees. In
19
revisiting this area fully occupied by state law, the Ordinance undermines the
considered judgments and choices of the Legislature, and is therefore preempted.
In drafting Division 1.6, the Legislature balanced two compelling and
competing considerations, i.e., the need to protect particularly vulnerable
consumers from predatory lending practices and the concern homeowners not be
unduly hindered in accessing the equity in their own homes. (See, e.g., Sen.
Judiciary Com., analysis of Assem. Bill No. 489 (2001-2002 Reg. Sess.) as
amended June 21, 2001, p. 2 [“Although many subprime lenders offer a vital
service to some low-income borrowers who would not otherwise qualify for credit,
many other low-income borrowers have been victimized by improper practices . . .
referred to . . . as ‘predatory practices’ ”]; Assem. Republican Bill Analysis,
analysis of Assem. Bill No. 489 (2001-2002 Reg. Sess.) as amended Sept. 6, 2001,
p. 3 [noting federal regulators “believe that responsible sub-prime lending can
expand credit access for consumers,” and that “ ‘a practice that can be abusive in
some contexts can also–in [the] absence of fraud or deception–be highly beneficial
to consumers . . . . Well meaning but haphazard reactions on the part of the
regulators . . . may have the unintended consequence of hurting those whom we
intend to help’ ”]; Assem. Com. on Appropriations, analysis of Assem. Bill No.
489 (2001-2002 Reg. Sess.) as amended May 1, 2001, p. 2 [“The cycle of high-
cost loan refinancing can ultimately deplete the homeowner’s equity and result in
foreclosure”].) While destructive lending practices occur most often in connection
with subprime lending, such lending is not inherently abusive, and has enabled an
entire class of individuals with impaired credit to enter the housing market or
access the equity in their homes. (See U.S. Gov. Accounting Off., Rep. on Federal
and State Agencies Face Challenges in Combating Predatory Lending, testimony
of David G. Wood before Sen. Special Com. on Aging (Feb. 24, 2004) p. 4.)
Severe regulation of subprime lending might cause lenders to cease making such
20
loans in California, or preclude borrowers from obtaining a loan based on equity in
their home even though such loans can serve a legitimate need. (Dept. of Real
Estate, enrolled bill rep. on Assem. Bill No. 489 (2001-2002 Reg. Sess.) Sept. 27,
2001, p. 7.) Moreover, increased regulation generally entails additional cost,
decreasing further the availability of loan funds to subprime borrowers. Thus, the
Legislature was aware regulation of certain predatory practices in mortgage
lending, practices which occur most often in the subprime market, could have the
unintended consequence of hurting those the legislation was intended to help, and
sought to balance these competing concerns. The Ordinance, and the possibility of
other divergent and competing local measures throughout California, upsets that
balance. By analogy to federal preemption law, the Ordinance “ ‘stands as an
obstacle to the accomplishment and execution of the full purposes and
objectives’ ” of the Legislature. (Volt Information Sciences, Inc. v. Bd. of Trustees
of Leland Stanford Junior Univ. (1989) 489 U.S. 468, 477.)
Taking just one example, Division 1.6 expressly does “not impose liability on
an assignee that is a holder in due course” and the provisions of the division do not
apply to “persons chartered by Congress to engage in secondary mortgage market
transactions.” (Fin. Code, § 4979.8.) The Ordinance expressly imposes such
liability. (Oak. Mun. Code, § 5.33.070.) Such an extension of liability to “[a]ny
person who purchases or is otherwise assigned a home loan” (§ 5.33.070) may
result in secondary purchasers being hesitant or unwilling to purchase mortgages
originating in Oakland. Should other cities adopt a similar extension of liability,10
10
Los Angeles has already done so in its antipredatory loan ordinance, added
January 29, 2003. (L.A. Mun. Code, ch. XVIII, art. 1, § 181.07, subd. (B) [“Any
person who purchases or is otherwise assigned a High-Cost Refinance Home Loan
is subject to all claims, actions, and defenses related to that High-Cost Refinance
Home Loan that the Borrower could assert against the original Lender”].)
21
subprime lending could conceivably be sharply curtailed in the state, despite the
Legislature’s efforts to avoid such an event. As AFSA observes, the Ordinance
“not only contradicts a careful legislative choice, [it] threatens to disrupt
secondary market transactions, interrupting the flow of loan capital to this state,”
and “divide the state’s economy into tiny geographic markets.”
Thus, contrary to the City’s and the dissent’s assertion, Division 1.6 does not
set “statewide minimum” standards beyond which municipalities are free to
regulate. (Dis. opn., post, at p. 9; id. at p. 16.) Rather, the Legislature’s full
occupation of this field preempts the Ordinance’s regulation even of those
mortgages not addressed by Division 1.6, such as loans between $250,000 and
$359,650. For the reasons cited above, it is difficult to imagine how the state
could maintain a centralized and uniform command in regulating predatory tactics
in home mortgages if municipalities were free to regulate the area with respect to
loans in amounts in excess of the state statutory ceiling.
Thus, in Lane we held that a city ordinance, making criminal sexual conduct
the state Penal Code did not, was preempted because the state had fully occupied
the field of regulation of sexual conduct by enacting a detailed legislative scheme.
(Lane, supra, 58 Cal.2d at pp. 103-105; see Issac, supra, 66 Cal.App.4th at p. 601
[“absence of any specific statewide legislation . . . does not create a statutory
loophole inviting local legislation, because of the pervasive statutory scheme
already in place governing lien priority”].) Similarly here, the Legislature’s
decision that certain mortgages, such as loans in excess of $250,000, are not
subject to regulation under Division 1.6 must be respected, and is not an invitation
for municipal regulation. The Legislature may reasonably have concluded that
mortgages in excess of the statutory ceiling were less likely to be attended by the
predatory practices that it sought to curtail, and hence borrowers should have
greater freedom to contract in this area. (See U.S. Dept. of the Treasury & U.S.
22
Dept. of Housing and Urban Development, Joint Rep., Curbing Predatory Home
Mortgage Lending, supra, at p. 28 [noting on average subprime loans are smaller
than prime loans].) As one amicus curiae notes, “California’s housing market is
one of the most vital sectors of its economy. The balances struck by the
Legislature in this critical area therefore must be seen as a reflection of the
Legislature’s reasoned assessment of the competing needs to provide mortgage
capital to the broadest possible segment of the populace while, at the same time,
discouraging unfair lending practices throughout the state. Local governments
should not be free to undermine the Legislature’s efforts in this area . . . by
striking different policy balances of their own.”
The City and the dissent essentially assert, however, that Oakland has a
higher incidence of subprime lending and the predatory tactics associated with
such lending than other areas of the state, and hence may suffer more than other
parts of California the resulting blight and poverty such tactics can foster. (Dis.
opn., post, at pp. 5-10, 15.) Assuming this is correct, and while these would be
important local concerns, they do not give the City a license to regulate a highly
complex financial area comprehensively addressed by state law. Such an
approach would mean that any city which claimed to experience a
disproportionate number of foreclosures, or instances of securities fraud, could
simply write its own measures regardless of any confusion these competing
measures may foster. Rather, the state’s interest in uniformity in the area of
mortgage lending law demonstrably transcends the concerns of a particular
municipality, and is a “convincing basis for legislative action . . . based on
sensible, pragmatic considerations.” (Calif. Fed., supra, 54 Cal.3d at p. 18.) In
this situation, the City must “defer to legislative estimates regarding the
significance of a given problem and the responsive measures that should be taken
toward its resolution.” (Id. at p. 24.)
23
The City relies on certain language in Sherwin-Williams, supra, 4 Cal.4th at
page 904, taken out of context, to support its argument that the failure on the part
of the Legislature to include express preemption language means that it had no
implied intent to preempt. In Sherwin-Williams, there existed at all relevant times
a statute that provided, “ ‘Nothing in this code shall invalidate an ordinance of, nor
be construed to prohibit the adoption of an ordinance by, a city, city and county, or
county, if such ordinance regulates the sale of aerosol containers of paint or other
liquid substances capable of defacing property.’ ” (Sherwin-Williams, at p. 899,
quoting former Pen. Code, § 594.5.) We observed that former Penal Code section
594.1, the statute at issue, as originally enacted in 1981, had regulated aerosol
paint containers larger than six ounces in section 1, an express preemption
provision regarding sales and possession of such aerosol containers in section 2,
and a no reimbursement provision in section 3. (Sherwin-Williams, at p. 900.) In
1988, former Penal Code section 594.1 was amended such that it generally applied
to all aerosol paint containers in section 1, and had a no reimbursement provision
in section 2. No express preemption provision was included in the 1988
amendment. (Sherwin-Williams, at pp. 900-901.)
We found that the amended section 594.1 of the Penal Code did not preempt
a local ordinance governing the display of aerosol paint containers and marker
pens. (Sherwin-Williams, supra, 4 Cal.4th at pp. 895-896, 906.) In so doing, we
made the following statement, on which the City relies: “In both 1981 and 1988,
the Legislature was acting, and presumably knew that it was acting, in the context
of Penal Code section 594.5, which by its very terms would render any aerosol
paint legislation ‘non-preemptive,’ at least as to sales. Hence, in both years, it was
obligated, and presumably knew that it was obligated, to take affirmative steps if it
intended to preempt. In 1981, it took such steps: it included the preemption
declaration. In 1988, it did nothing. It certainly knew how to copy: in the earlier
24
year, it inserted a ‘no reimbursement’ clause; in the later, it inserted a similar
clause. To our mind, the conclusion is clear. In 1981, it expressly intended to
preempt. In 1988, it impliedly intended not to.” (Sherwin-Williams, at p. 904.)
As can be seen, Sherwin-Williams was decided based on a significantly
different statutory landscape than we encounter here. Unlike Sherwin-Williams,
the City points to no language in Division 1.6 which states that nothing in its
provisions shall invalidate a local ordinance if such ordinance regulates predatory
mortgage lending practices. Hence, the Legislature’s failure to include an express
preemption provision in Division 1.6 does not ineluctably mean there is no
implied preemption. Significantly, aside from the Savings Association Law (Fin.
Code, § 5000 et seq.), at least two other state laws governing mortgage lenders, the
California Residential Mortgage Lending Act (Fin. Code, § 50000 et seq.), and the
mortgage of real property provisions in the Civil Code (Civ. Code, §§ 2947-
2955.5), do not have an express preemption provision. Indeed, the City does not
point out for us any state mortgage lending law that has an express preemption
provision.
The City and the dissent rely on testimony at a Senate subcommittee hearing
held shortly before the passage of Division 1.6, urging inclusion of an express
preemption provision, and the fact that several members of the Legislature had a
brief conversation regarding preemption at that subcommittee hearing, in asserting
Division 1.6 does not impliedly preempt the Ordinance. (Dis. opn., post, at pp. 2-
3.)
Of course, by definition, the Legislature’s implicit full occupation of a field
occurs only when there is no express intent in the state law. We disagree with the
Court of Appeal’s statement that “when the Legislature is silent on preemption,
courts presume there is no intent to preempt.” Adopting this approach would be a
notable departure from our implied preemption precedents. Instead, in such
25
circumstances we consider factors including the language and scope of the
adopted measure, the history behind the adopted measure, and the history of
regulation in the area, as we have done in this and other field preemption cases.
(E.g., Great Western, supra, 27 Cal.4th at pp. 860-867; Tolman, supra, 39 Cal.2d
at p. 712 [Legislature’s “intent with regard to occupying the field to the exclusion
of all local regulation is not to be measured alone by the language used but by the
whole purpose and scope of the legislative scheme”].) Neither the City nor the
dissent offers a reason why we would not consider such language, scope, and
purpose merely because at some point during the bill enactment process the issue
of express preemption may have arisen. Nor do they demonstrate that these
traditional indicators of legislative intent point toward allowing hundreds of cities
in California to enact their own mortgage lending laws, an area historically
regulated by the state.
Taken to its logical extreme, the City’s and the dissent’s approach would
eliminate the doctrine of implied preemption at least to the extent someone
somewhere ever suggested to the Legislature an express preemption clause would
be useful, and the Legislature declined to adopt that suggestion. Such a standard
would be easily manipulable, and would punish constituents who attempt to
educate the Legislature about their concerns to the extent their concerns were not
addressed in the precise manner proposed to the Legislature. Moreover, for well
over a century, mortgage lending has occurred at the state, not municipal level,
and the effects of such regulation are no longer simply statewide, but national.
While we cannot know the reasons for the absence of express preemption
language, the Legislature is deemed to be aware of existing law, and may have
comfortably assumed that given such state dominance in mortgage lending
regulation, and having omitted express preemption provisions in other mortgage
lending laws without such an omission being read as a license for local regulation,
26
that an express preemption provision was unnecessary. Indeed, unlike the dissent,
we are reluctant to reward the opponents of preemption when nothing in the
statutory language or history suggests they persuaded the Legislature to consider
relinquishing its historical control of this particular regulatory field and to tolerate
municipal, and possibly conflicting, regulation.
In addition, our prior cases establish that even when the Legislature amends a
bill to add a provision, and then deletes that provision in a subsequent version of
the bill, this failure to enact the provision is of little assistance in determining the
intent of the Legislature. (Graham v. Daimlerchrysler Corp. (2004) 34 Cal.4th
553, 573, fn. 5 [“ ‘Unpassed bills, as evidence of legislative intent, have little
value’ ”]; People v. Sparks (2002) 28 Cal.4th 71, 87, fn. 20 [same]; Sherwin-
Williams, supra, 4 Cal.4th at p. 904, fn. 6 [same].) How much less value is there
in determining legislative intent when no version of a bill was ever amended to
include a provision, here express preemption, suggested by a member of the
public? Similarly, we have repeatedly observed that “statements of an individual
legislator, including the author of a bill, are generally not considered in construing
a statute, as the court’s task is to ascertain the intent of the Legislature as a whole
in adopting a piece of legislation.” (Quintano v. Mercury Cas. Co. (1995) 11
Cal.4th 1049, 1062.)11
11
The dissent bases much of its position on a “concession” by AFSA that
“ ‘the Legislature could say nothing for or against preemption without risking
defeat of’ ” Assembly Bill No. 489. (Dis. opn., post, at p. 2; id. at pp. 4, 5.) The
dissent points to no evidence AFSA was involved in the legislative process of
Division 1.6 even as an interested constituent. More critically, we have repeatedly
concluded, as noted above, that even the statements of individual legislators are
not generally considered in construing a statute. Of how much less worth is a third
party’s opinion regarding that legislative process? Indeed, discerning legislative
intent from an outside party’s “concession” appears not only a novel but a
problematic approach. Had AFSA not made such a “concession,” would the
(footnote continued on next page)
27
Moreover, while the possibility of including express preemption language
may have arisen at one committee hearing, and in certain letters from
constituents,12 it is scarcely mentioned in the remainder of Division 1.6’s
legislative history. Rather, in that history, the Legislature was instead focused on
what the terms of the antipredatory lending law should be, which, as we have
concluded, is its role in this area. Thus, in various bill analyses recounting bases
for opposition to Assembly Bill No. 489, and in letters from Assembly Republican
Leader Dave Cox and Senate Republican Whip Raymond Haynes to Governor
Davis urging a veto of that bill, there is no mention of the absence of an express
(footnote continued from previous page)
dissent then find there was preemption? As in the case of comments from
constituents to the Legislature, on which the dissent also relies, our preemption
principles simply cannot be so arbitrary and malleable.
Even if there was competent evidence the Legislature had debated and
rejected the notion of including an express preemption clause, and deliberately
decided to remain silent, such history would merely show that lawmakers left the
preemption issue exactly where it would have been if nothing had been said during
the bill enactment process. Under such circumstances, and contrary to what the
dissent claims, there would still be no basis for straying from our traditional
examination of the language, scope, and purpose of the enacted statutory scheme
in determining whether the Legislature manifested an implicit intent to occupy the
field and preempt all local regulation. Considering that language, scope, and
purpose here, as delineated at length above, we find clear indications of such an
intent, and conclude the Ordinance is preempted.
12
It is noteworthy that one such letter writer, FannieMae, expressly withdrew
its opposition to Assembly Bill No. 489, and then urged the bill authors to
consider adding an express preemption provision. (FannieMae, letter to Sen.
Machado and Assemblywoman Migden (Sept. 13, 2001) p. 1.) Similarly, the
California Mortgage Bankers Association noted it had withdrawn its opposition to
Assembly Bill No. 489, was now neutral on both Assembly Bill Nos. 489 and 344,
and then mentioned it looked forward to working with the Legislature on an
express preemption provision. (Cal. Mortgage Bankers Assn., letter to Sen.
Machado and Assemblywoman Migden (Oct. 4, 2001) p. 1.)
28
preemption provision. (See, e.g., Assem. Republican Bill Analysis, analysis of
Assem. Bill No. 489 (2001-2002 Reg. Sess.) as amended Sept. 6, 2001, p. 2;
Assem. Republican Bill Analysis, analysis of Assem. Bill No. 489 (2001-2002
Reg. Sess.) as amended Apr. 5, 2001, pp. 1-2; Assemblyman Dave Cox, letter to
Governor Gray Davis (Sept. 25, 2001) p. 1; Sen. Raymond Haynes, letter to
Governor Gray Davis (Sept. 18, 2001) p. 1.)
Similarly, in recounting the opposition arguments to Assembly Bill Nos. 489
and 344 (the cleanup bill for Assembly Bill No. 489), the enrolled bill reports for
the State and Consumer Services Agency, the Department of Real Estate, and the
Department of Financial Institutions do not mention the absence of an express
preemption provision. Thus, the Department of Real Estate enrolled bill report
states, “[s]ome lenders may leave the California market limiting access to capital
for those who need it most. In addition, this bill would effectively preclude equity
based lending for covered loans even though it has been demonstrated such loans
have served a legitimate need.” (Dept. of Real Estate, enrolled bill rep. on Assem.
Bill No. 489 (2001-2002 Reg. Sess.) Sept. 27, 2001, p. 7.) Under “[v]otes,” the
enrolled bill report notes, “[m]any [m]embers who voted ‘no’ expressed concerns
that the passage of the bill would cause lenders to cease making subprime loans in
California. In addition, many [m]embers who voted ‘no’ expressed concern that
this bill would preclude a borrower from obtaining a loan solely based on the
equity in the property, even though such loans may serve a legitimate need.”
(Ibid.; State and Consumer Services Agency, enrolled bill rep. on Assem. Bill No.
489 (2001-2002 Reg. Sess.) Sept. 20, 2001, p. 7 [“Could eliminate a source of
funding for a segment of consumers that are not served by traditional, mainstream
lenders (the same argument that is applied to payday loans). Could make
California loans undesirable for purchase and investment. Bankers argue that
legitimate lenders that charge higher fees and interest rates to people with poor
29
credit to compensate for the greater risk of default (known as subprime lending)
will be unfairly restricted”]; Dept of Financial Inst., enrolled bill rep. on Assem.
Bill No. 489 (2001-2002 Reg. Sess.) Sept. 27, 2001, p. 8 [“[T]here is some
concern as to the [e]ffect the provisions of this bill will have on the subprime
market. As illustrated by the departure of some licensees in North Carolina, some
lenders may leave California’s lending market. The effect on the subprime market
could be the reduction of mortgage credit available to higher risk borrowers who
do not otherwise qualify in the prime market”]; Dept. of Real Estate, enrolled bill
rep. on Assem. Bill No. 344 (2001-2002 Reg. Sess.) Sept. 27, 2001, pp. 2, 4.) The
Department of Corporations enrolled bill report did note among other arguments
in opposition to Assembly Bill No. 489 that “[i]ndustry groups argue that AB 489
should expressly preempt local ordinances which exceed the protections afforded
by this bill. Without preempting city or county ordinances, lenders will continue
to be exposed to nonuniform restrictions imposed by various municipalities
throughout California.” (Dept. of Corporations, enrolled bill rep. on Assem. Bill
No. 489 (2001-2002 Reg. Sess.) Sep. 27, 2001, p. 8.) However, this restatement
of an argument made by certain industry groups does not purport to reflect debate
within the Legislature.13
13
Other than the statements of individual legislators at one Senate
subcommittee hearing, and testimony by constituents at that same hearing, which
we have already discussed, the dissent cites nothing in the legislative history of
Division 1.6 to support its repeated assertion that the Legislature “consciously
considered including express preemption language in the statewide statute . . ., but
ultimately omitted any such language from the statute as one of the essential
elements of a compromise that led to the enactment of the legislation.” (Dis. opn.,
post, at p. 1, fn. omitted; see, e.g., id. at p. 2 [“Here, there is considerable extrinsic
evidence . . . that the Legislature specifically considered and purposefully rejected
an express preemption clause despite extensive lobbying for the inclusion of
express preemption language in the state statute”]; ibid. [“the issue of preemption
(footnote continued on next page)
30
The Court of Appeal also noted that the Governor in signing Assembly Bill
No. 489 expressly lamented the fact it did not contain express preemption
language, and the Legislative Counsel opined a local ordinance would be valid to
the extent it did not conflict with state law. We may not consider such post-
enactment events as a Governor’s signing statement, and not even the City relies
on this circumstance. Moreover, the Legislative Counsel’s generalized and routine
discussion of preemption law is not evidence the Legislature believed an
ordinance such as the one challenged here would survive a preemption challenge.
The Legislative Counsel expressly observed, “Because we have not been provided
with a specific local government ordinance regulating high-cost mortgage lending,
we . . . discuss generally the grounds for preemption of a local government
ordinance by state law.” (Deputy Legis. Counsel L. Erik Lange, letter to Sen.
Machado (Sept. 7, 2001) p. 1.)
AFSA also claims that the Ordinance is preempted by Division 1.6 because it
duplicates and contradicts state law and the Ordinance is preempted by Civil Code
section 1916.12. Since we conclude the Ordinance is preempted because by
enacting Division 1.6 the Legislature has fully occupied the field of regulation of
predatory practices in home loans, we need not address these additional
preemption arguments.
(footnote continued from previous page)
was arguably at the forefront of the debate over Assembly Bill No. 489”]; id. at
p. 3 [“silence on the preemption issue was not inadvertent but deliberate, part of a
legislative compromise”]; id. at p. 4 [“passage of the bill hinged on the inclusion
or exclusion of express preemption language”]; id. at p. 10 [“All we can be certain
of is that Division 1.6 was the product of a legislative compromise, and that the
compromise included deliberate silence on the matter of preemption”].)
31
DISPOSITION
The judgment of the Court of Appeal is reversed, and the case remanded to
that court for further proceedings consistent with this opinion.
BROWN, J.
WE CONCUR:
BAXTER,
J.
WERDEGAR,
J.
CHIN,
J.
32
C O P Y
AMERICAN FINANCIAL SERVICES ASSN. v. CITY OF OAKLAND
S119869
DISSENTING OPINION BY GEORGE, C. J.
I respectfully dissent.
Past California cases establish that a general statewide statute will be held
to preempt all local legislative measures only when the state legislation, explicitly
or impliedly, “clearly indicates” that the Legislature intended to fully occupy the
field and preclude all local regulation. (Sherwin Williams Co. v. City of Los
Angeles, (1993) 4 Cal.4th 893, 898.) Here, the Legislature consciously considered
including express preemption language in the statewide statute (division 1.6 of the
Financial Code, sections 4970-4979.8),1 but ultimately omitted any such language
from the statute as one of the essential elements of a compromise that led to the
enactment of the legislation. In view of this legislative background — which
demonstrates that the statute does not “clearly indicate” a legislative intent to
preempt all local legislation — and the distinctive local interest that the City of
Oakland has in adopting stringent and effective measures to protect its residents
from the predatory lending practices at issue, I cannot agree with the majority that
Division 1.6 properly may be found to preempt the Ordinance in its entirety.2
1
For convenience, like the majority opinion, I shall refer to the relevant state
statute as “Division 1.6,” and the relevant local legislation as the “Ordinance.”
2
Because the majority concludes that the Ordinance is invalid in its entirety,
I do not reach the question whether some individual provisions of the local
enactment may be inconsistent with Division 1.6 and for that reason preempted by
that legislation.
1
I
Unlike our previous implied preemption cases, this is not simply a case in
which the Legislature was silent about preemption. Here, there is considerable
extrinsic evidence, and a concession from the party arguing in favor of
preemption, that the Legislature specifically considered and purposefully rejected
an express preemption clause despite extensive lobbying for the inclusion of
express preemption language in the state statute. As plaintiff American Financial
Services Association (AFSA) itself acknowledges, there were strongly held
disagreements over preemption between industry representatives and consumer
proponents of the bill. Indeed, the record reveals that the subprime lending
industry vigorously lobbied for express preemption language.
Under normal circumstances, the mere absence of express preemption
language would not be dispositive. But here the party arguing in support of
preemption explicitly has admitted that there were insufficient votes in the
Legislature to enact the bill with an express preemption provision. Specifically,
AFSA’s brief acknowledges that “the Legislature could say nothing for or against
preemption without risking defeat of [Assembly Bill No.] 489. So it elected to
remain silent.” (Italics added.) The majority fails to acknowledge or afford
appropriate consideration to this admission.
Moreover, contrary to the majority’s reading of the relevant legislative
history, I believe this history supports AFSA’s concession. This is not a situation
where the preemption issue was abstract or peripheral. Indeed, the issue of
preemption was arguably at the forefront of the debate over Assembly Bill No.
489 (2001-2002 Reg. Sess.). For instance, the members of the Senate Banking
Committee that forged the legislative compromise that led to passage of the bill
heard testimony from Oakland City Councilman Ignacio de la Fuente regarding
the imminent passage of the Ordinance. In response to this testimony, a
2
committee member expressed concern that without express preemption language,
there would be a host of different lending policies from community to community.
In response, the bill’s co-author, Assemblywoman Migden, stated at the
August 27, 2001, hearing on Assembly Bill No. 489 (2001-2002 Reg. Sess.) by the
Senate Banking, Commerce and International Trade Committee: “We’re trying to
make sure that everyone can live with the bill, industry and consumers alike and
. . . we’ve decided . . . to be silent on [preemption], which does lend different
interpretations.”
At the same hearing, the committee also heard from numerous financial
industry representatives who urged the committee to include preemption language.
(Adam Bass of Ameriquest Mortgage Company: “preemption is a major issue”;
John Ross, Mortgage Bankers Assn.: “preemption is a big issue for our
members”; Brian Kennealy of the Responsible Mortgage Lenders Coalition:
“preemption is a very, very important issue to us and our members”; Eleanda
Delgado of Irwin Home Equity Corp., agreeing with the others; Bernard Nevins,
Cal. Assn. of Industrial Bankers: preemption “can’t hurt and it would be very bad
if you didn’t do it”; Phil Eisenberg, American Internat. Group: “the preemption
issue is fundamental. It’s not cursory. It’s not a medium-sized issue. It’s
fundamental”; Tom McMorrow, Countrywide Mortgage and First Union:
“Preemption remains fundamental.”) This effort by the financial industry to
include express preemption language in the statute further establishes that silence
on the preemption issue was not inadvertent but deliberate, part of a legislative
compromise “to make sure that everyone can live with this bill, industry and
consumers alike . . . .” The majority’s assertion that the Legislature’s silence on
preemption was inadvertent, or that the Legislature believed that express
preemption language was unnecessary, is simply untenable.
3
The majority minimizes the foregoing history by arguing that although an
express preemption issue “may have arisen” at some point during the bill
enactment process, the issue was peripheral. As noted, this ignores AFSA’s
concession that the issue of express preemption not only “arose,” but threatened to
derail passage of the bill. Thus, this is not simply a case where “someone
somewhere . . . suggested to the Legislature an express preemption clause would
be useful, and the Legislature declined to adopt that suggestion.” (Maj. opn., ante,
at p. 26) This is a case where passage of the bill hinged on the inclusion or
exclusion of express preemption language. Thus, this is not a case where the city
relies on the mere absence of express preemption to argue against implied
preemption. There is significantly more evidence of deliberate exclusion of a
preemption provision here, and the majority’s concern about the demise of the
doctrine of implied preemption is unwarranted.
Nonetheless, it can be argued, as AFSA does, that the stalemate on the
preemption issue neither supports nor undermines a conclusion as to preemption,
and that the court should resort to certain default rules about preemption that it has
developed over the years. But one of those rules, indeed the principal rule, is that
legislative intent be clearly indicated. As the Court of Appeal noted in California
Rifle & Pistol Assn. v. City of West Hollywood (1998) 66 Cal.App.4th 1302, 1317,
the Legislature’s failure to include express preemption language may be critical.
“Claims of implied preemption must be approached carefully, because they by
definition involve situations in which there is no express preemption. Since
preemption depends upon legislative intent, such a situation necessarily begs the
question of why, if preemption was legislatively intended, the Legislature did not
simply say so, as the Legislature has done many times in many circumstances.”
(Ibid.) Hence, the rule has developed that implied preemption properly can be
found only when the circumstances “clearly indicate” a legislative intent to
4
preempt. (Sherwin Williams Co. v. City of Los Angeles, supra, 4 Cal.4th 893,
898.) The need for such a “clear indication” is especially acute when the extrinsic
evidence and the concession of the parties demonstrate that the Legislature
declined to adopt an express preemption provision because such a provision would
not command a majority of the Legislature. A legislative stalemate on preemption
is not an indication of a clear intent to preempt local legislation.
II
The majority’s emphasis on state uniformity and historical regulation
patterns also fails to acknowledge properly the respect this court traditionally has
accorded to localities regarding issues that have a unique local impact. As we
stated in Fisher v. City of Berkeley (1984) 37 Cal.3d 644, 707, “[w]e will be
reluctant to infer legislative intent to preempt a field covered by municipal
regulation where there is a significant local interest to be served that may differ
from one locality to another.” I am particularly troubled by the majority’s express
disapproval of the Court of Appeal’s contention that “when the Legislature is
silent on preemption, courts presume there is no intent to preempt.” (Maj. opn.,
ante, at p. 25.) To the contrary, as the Court of Appeal aptly observed in Gluck v.
County of Los Angeles (1979) 93 Cal.App.3d 121, 133, the common thread of our
preemption cases is that “if there is a significant local interest to be served from
one locality to another then the presumption favors the validity of the local
ordinance against an attack of state preemption.”
The regulation of predatory lending undoubtedly is an area of statewide
concern. Nevertheless, I am not persuaded that the field is exclusively so, thus
leaving no room for local regulation. “The significant issue in determining
whether local regulation should be permitted depends upon a ‘balancing of two
conflicting interests: (1) the needs of local governments to meet the special needs
of their communities; and (2) the need for uniform state regulation.’ [¶] That
5
basic issue, in turn, may in a specific instance be fragmented into the component
issues which combine to effect its resolution such as whether local legislators are
more aware of and better able to regulate appropriately the problems of their areas,
whether substantial geographic, economic, ecological or other distinctions are
persuasive of the need for local control, and whether local needs have been
adequately recognized and comprehensively dealt with at the state level. Certain
areas of human behavior command statewide uniformity, especially the regulation
of statewide commercial activities and the conduct of transient individuals, so that
mobility may not be burdened unreasonably.” (Robins v. County of Los Angeles
(1966) 248 Cal.App.2d 1, 9.)
As the court made clear in Robins, although the need for state uniformity is
an important consideration in resolving preemption questions, the interests of the
locality also are entitled to considerable weight. “The pervasive question to be
answered is: Does the demand for uniformity throughout the state outweigh the
needs of local governments to handle problems peculiar to their communities.”
(Tri County Apartment Assn. v. City of Mountain View (1988) 196 Cal.App.3d
1283, 1294.)
The record in this case establishes that Oakland’s Ordinance was adopted
because many low-income homeowners in the City of Oakland were targeted by
unethical mortgage lenders using predatory lending practices. Many low- and
moderate-income homeowners in Oakland were unable to obtain conventional
legitimate financing. Local conditions allowed predatory lenders to thrive, and
their practices unfairly stripped homes of equity value and resulted in a number of
unjust home foreclosures. Often, through fraudulent means, homeowners were
charged exorbitant fees and interest rates and unfairly were persuaded to incur
mortgage debt in excess of their needs or ability to pay. The record reflects that
the Oakland City Council, in passing the ordinance in question, found that the
6
predatory lending problem in Oakland was particularly aggravated “because of the
high number of minority and low income homeowners in Oakland, and the
pressures of gentrification in certain neighborhoods that increase property values
and home equity,” which have led to a situation in which “Oakland residents in
low income areas have been perceived to be ‘the house rich and the cash poor’ and
thus are prime targets for predatory lending practices.”
Oakland’s findings mirror the conclusions of the United States Department
of Housing and Urban Development (HUD) in an analysis of almost one million
mortgages reported nationwide in calendar year 1998 under the Home Mortgage
Disclosure Act. (See HUD Rep., Unequal Burden: Income and Racial Disparities
in Subprime Lending In America (Apr. 2000), http://www.hud.gov/library
/bookshelf18/pressrel/subprime.html [as of Jan. 31, 2005] (HUD Report).) HUD’s
detailed analysis reached four critical conclusions: (1) from 1993 to 1998, the
number of subprime refinance loans increased ten-fold;3 (2) subprime loans are
three times more likely in low-income neighborhoods than in high-income
neighborhoods; (3) subprime loans are five times more likely in African-American
3
The subprime mortgage market is a market providing credit access to
borrowers who might not qualify for traditional financing, such as those with
impaired credit, limited income, or high debt-to-income ratios.
HUD reports that in 1993, there were 80,000 subprime refinance loans
reported under the Home Mortgage Disclosure Act. By 1998, this number had
increased by more than 900 percent to 790,000. “The magnitude and speed of the
increase in subprime lending alone — almost 1000% in just five years — creates a
critical need for greater scrutiny and concern. While the rapid growth of subprime
lending may, on the surface, appear to be good news for higher-risk borrowers,
behind the numbers there is some evidence that some portion of subprime lending is
occurring with borrowers whose credit would qualify them for conventional loans.
Subprime lending may expose borrowers to higher up-front fees and interest rates
than they would bear if they had obtained prime loans.” (HUD Rep., supra,
http://www.hud.gov/library/bookshelf18/pressrel/subprime.html.)
7
neighborhoods than in white neighborhoods; and (4) homeowners in high-income
African-American neighborhoods are twice as likely as homeowners in low-
income white neighborhoods to have subprime loans.4 HUD concluded that its
analysis “clearly demonstrates the exponential growth in subprime lending and its
disproportionate impact on low-income and particularly, minority homeowners
and communities throughout the nation.” (See HUD Rep., supra,
http://www.hud.gov/library/bookshelf18/pressrel/subprime.html.)
As HUD’s conclusions illustrate, Oakland’s particular interest in regulating
subprime loans goes beyond merely protecting its particularly vulnerable citizens.
As one amicus curiae points out, “predatory lending is not just a consumer
protection issue; it is a community development issue, because it threatens the
stability of lower income homeowning neighborhoods . . . . [¶] Predatory home
mortgage lending has enormous impacts on targeted neighborhoods. Predatory
lending practices, particularly the phenomenon of ‘asset based lending,’ contribute
to an increase in the number of foreclosures. This can result in abandoned houses
and blighted neighborhoods and contribute to the physical and economic
deterioration of lower-income, minority, and inner city communities.
‘Foreclosures, especially in low- and moderate-income neighborhoods turn what
might be typically viewed as a consumer protection problem . . . into a community
development problem, in which increased foreclosures lead to property
abandonment and blight.’ ” (Quoting HUD Rep., Recommendations to Curb
4
HUD also analyzed the prevalence of subprime loans in five urban areas
(Atlanta, Philadelphia, New York, Chicago, and Baltimore), concluding that a
study of the five cities “gives a good sense that the trends identified above are
consistent at the metropolitan level.” (HUD Rep., supra,
http://www.hud.gov/library /bookshelf18/pressrel/subprime.html.)
8
Predatory Home Mortgage Lending (June 2000) pp. 24-25, available online at
http://www.treas.gov/press/releases/reports/treasrpt.pdf [as of Jan. 31, 2005].)
In view of the community degradation caused by predatory lending,
Oakland reasonably could have concluded that it was important to include holders
in due course within the Ordinance’s purview. The bulk sale of mortgage loans on
the secondary market is the primary profit incentive for subprime mortgage
lenders. (See Eggert, Held up in Due Course: Predatory Lending, Securitization,
and the Holder in Due Course Doctrine (2002) 35 Creighton L.Rev. 503, 577
[noting that a primary reason for the rapid growth of the industry “is that the
existence of ready capital available to lenders through the securitization of
subprime loans has dramatically increased their ability to make those loans”]. The
innovation of selling mortgage loans in bulk is, in fact, what fueled the enormous
growth of the subprime mortgage industry. (See id. at p. 578) As the City of
Oakland points out, “sales of subprime loans by predatory lenders is the
inducement and profit-basis for their business practice of encouraging ever higher
and larger loans to subprime borrowers, i.e. larger ‘inventory’ of loans for sale to
others — all to the detriment of the consumer public.” Thus, Oakland reasonably
could have concluded that because the bulk of subprime loans are sold on the
secondary market, the Ordinance would have significantly greater deterrence
effect if borrowers were able to invoke the defense of predatory lending in a
foreclosure or other enforcement action against the secondary buyers who
otherwise might be immune from liability. Otherwise, as one amicus curiae points
out, “[s]ince most subprime loans are sold on the secondary market, the lack of
assignee liability provides little incentive to the industry to clean up its practices.”
The Legislature was free to conclude that treatment of predatory lending
requires statewide uniformity. Alternatively, however, it could conclude that only
a statewide minimum standard of conduct is necessary, and that local jurisdictions
9
have some freedom to additionally regulate predatory lenders pursuant to the
municipal police power to prevent urban decay and neighborhood blight. Because
of the local, varying nature of the problem, this is not a case in which having
differing local standards is wholly illogical. (Cf. Tolman v. Underhill (1952) 39
Cal.2d 708, 713 [loyalty oaths for state employees requires uniform treatment];
Northern Cal. Psychiatric Society v. City of Berkeley (1986) 178 Cal.App.3d 90,
102 [no special local interest with regard to regulation of electroshock therapy].)
All we can be certain of is that Division 1.6 was the product of a legislative
compromise, and that the compromise included deliberate silence on the matter of
preemption.
As discussed above, predatory lending is characterized by loans that are
aggressively marketed to borrowers who often cannot afford the payments and
eventually default on the loans. The city argues that the high rate of default and
foreclosure has led to the degradation of entire neighborhoods and has contributed
to the already substantial problem of urban blight in Oakland. The field of
predatory lending regulation is one in which conditions peculiar to the locality are
likely to differ from place to place and where supplemental regulation may well
fall within the realm of local government. (Gluck v. City of Los Angeles, supra, 93
Cal.App.3d 121, 133 [upholding a Los Angeles ordinance regulating the
placement and display of news racks on public rights of way].)
This court has acknowledged that the balance of power between state and
local municipalities recognizes that a one-size-fits-all solution is not always in the
best interest of the residents of a particular community. (See, e.g., Calif. Rifle &
Pistol Assn. v. City of West Hollywood, supra, 66 Cal.App.4th 1302, 1318
[recognizing the need for caution in “depriving local municipalities of aspects of
their constitutional police power to deal with local conditions”].) Keeping this in
mind, courts have taken care to harmonize the general law and the localized need
10
for municipal regulation even where the record reveals a pronounced statewide
interest and a comprehensive statewide scheme relating to the field. (See, e.g.,
People v. Butler (1967) 252 Cal.App.2d 584 [upholding ordinance prohibiting
consumption of alcoholic beverages on public streets despite a comprehensive
statewide scheme relating to such beverages]; Gleason v. Municipal Court (1964)
226 Cal.App.2d 584 [upholding local ordinance proscribing loitering despite the
then-broad sweep of Penal Code section 647].) The case before us falls squarely
within this line of precedent.
The cases cited by the majority do not compel a contrary conclusion.
Although our numerous preemption cases resist easy harmonization, one theme
that emerges is that those municipal ordinances that have been found to be
preempted have been seen as subverting, in some tangible way, the purpose and
intent of the state statute. This is true of each of the cases relied upon by the
majority. In Wilson v. Beville (1957) 47 Cal.2d 852, we invalidated a local
ordinance that attempted to impose conditions more stringent than those imposed
by the state on the exercise of the power of eminent domain by specifying a
shorter statute of limitations for the filing of a claim. There, we observed that a
“city charter cannot give a shorter time, make more onerous the recovery of
compensation, than the legislation has.” (Id. at p. 861). We also observed that “a
municipality may not curtail or abridge the rights so granted [right to recover for
tort] by specifying, through charter provision, a shorter time limitation . . . than the
period fixed by the statute.” (Ibid., citing Eastlick v. City of Los Angeles (1947)
29 Cal.2d 661, 666.) The local legislation thus undermined the statute by making
the recovery of compensation more onerous. As such, the local ordinance was
invalid because the Legislature had “provided a complete and detailed system for
exercising the right of eminent domain and assessing compensation.” (Wilson v.
Beville, supra, 47 Cal.2d at p. 862.)
11
Similarly, in Eastlick, we struck down a requirement in the Los Angeles
City Charter that required a personal injury claimant to itemize the damages in her
claim. The requirements for a personal injury claim under state law did not
require such specificity. (Eastlick v. City of Los Angeles, supra, 29 Cal.2d 661,
666.) Again, as in Wilson, the locality had attempted to abridge and circumscribe
a state law right, thereby undermining the purpose of the state regulation. (Ibid.)
Likewise, in Birkenfeld v. City of Berkeley (1976) 17 Cal.3d 129, 152, we
invalidated a provision in the Berkeley City Charter that attempted to impose
additional restrictions on a landlord’s right to evict a tenant. There, we observed
that requiring “landlords to fulfill the elaborate prerequisites for the issuance of a
certificate of eviction by the rent control board before they commence the [state]
statutory proceeding would nullify the intended summary nature of the [statutory]
remedy.” (Id. at p. 151.) In Isaac v. City of Los Angeles (1998) 66 Cal.App.4th
586, 600, the Court of Appeal held that an ordinance that gave utility liens priority
over other recorded liens was preempted “because it disrupts California’s
statewide statutory scheme of lien priority” by giving the utility lien a priority over
other liens that the state has determined should have priority.
The common theme running through these cases is that a locality may not
impose additional burdensome requirements upon the exercise of state statutory
remedies that undermine the very purpose of the state statute. Here, we are
presented with a fundamentally different relationship between the state statute and
local regulations. The Ordinance does not appear to undermine any of the stated
goals of Division 1.6. To the contrary, the ordinance grants borrowers additional
rights not afforded under state law, such as restrictions on prepayment penalties,
mandatory credit counseling, and the opportunity to present defenses to secondary
buyers of their mortgages if the borrowers have been victimized by predatory
lending practices. Far from subverting Division 1.6, the Ordinance furthers the
12
stated goal of the state legislation by providing additional protections to the low-
income borrowers in Oakland who are especially vulnerable to predatory lending
practices.
The majority argues, however, that the Ordinance does disrupt the balance
struck by the Legislature in enacting Division 1.6. The majority asserts that
Division 1.6 balanced “the need to protect particularly vulnerable consumers from
predatory lending practices and the concern homeowners not be unduly hindered
in accessing the equity in their own homes.” (Maj. opn., ante, at p. 20.) The
majority observes that “[s]evere regulation of subprime lending might cause
lenders to cease making such loans in California, or preclude borrowers from
obtaining a loan based on equity in their home even though such loans can serve a
legitimate need . . . . Thus, the Legislature was aware regulation of certain
predatory practices in mortgage lending, practices which occur most often in the
subprime market, could have the unintended consequence of hurting those the
legislation was intended to help, and sought to balance these competing concerns.
The Ordinance, and the possibility of other divergent and competing local
measures throughout California, upsets that balance.” (Id., at pp. 20-21.)
Although it undoubtedly is true that the Legislature struck a balance to
ensure passage of the bill, the balance was the product of compromise between
consumer protection interests and finance industry interests. In order to glean the
intent of the Legislature regarding preemption, we must examine the entirety of
that compromise, and not selective parts of it. As discussed above, that
compromise included the omission of any provision relating to preemption of local
legislation. Yet, the majority concludes that preemption nonetheless was intended,
emphasizing the Legislature’s supposedly overriding concern regarding the threat
that patchwork regulation might pose to low-income borrowers’ access to capital.
This emphasis on the need to prevent undue regulation ignores the principal
13
purpose of Division 1.6, which is to improve consumer protection against
predatory lending practices, not to protect lenders from unduly restrictive
regulation.
The majority’s implicit assumption is that Oakland’s Ordinance, by
providing for stricter regulation of certain areas of subprime lending, necessarily
will cause lenders to cease making loans in Oakland and in California as a whole.
(Maj. opn., ante, at pp. 20-21.) Had a majority of the Legislature agreed with that
proposition, however, it could be expected that the legislation would have
included a provision expressly preempting local legislation. The conscious
omission of an explicit preemption provision demonstrates that the Legislature
could not agree that local legislation would undermine or impair the objectives of
the state legislation. Furthermore, should the undesirable consequences forecast
by the majority come to pass, the Legislature, of course, would be free to step in
and add an express preemption provision to Division 1.6.
The majority also places great emphasis on the city’s admission that in
more than 150 years of California history, no municipality has attempted to
regulate mortgage lending. (Maj. opn, ante, at p. 17.)5 But we never have required
a locality to prove a historical practice of regulation to establish the validity of a
local regulation. Rather, as outlined above, the proper inquiry requires a clear
indication of legislative intent and a studied balance between the need for state
uniformity and the particular interest of the locality. Although historical
regulatory patterns may be significant in assessing legislative intent, we must
5
Of course, as the majority acknowledges, Oakland is not the only
municipality seeking to regulate in this field. Los Angeles also recently enacted
an Ordinance regulating predatory lending practices. (L.A. Mun. Code, ch. XVIII,
art. 1, § 181.07, subd. (B))
14
assess that history in context. The subprime mortgage industry has undergone
tremendous growth in recent years. (See ante, fn. 3.)6 During that period,
predatory lending has had a grossly disproportionate impact on low-income and
minority homeowners and communities. Under these circumstances, it is
reasonable that the communities most affected would see a need to take action to
protect their residents.
Thus, despite the circumstance that mortgage regulation historically has
occurred at the state rather than the local level, we must recognize the concerns
implicated by the recent rapid escalation of predatory lending. In view of the
documented evidence that predatory lending is especially pervasive in low-income
and minority neighborhoods, it is beyond dispute that Oakland and other similarly
situated localities have a more significant interest in regulating subprime lending
than localities that, because of demographics and composition, are not targeted in
similar ways. Local regulation thus is not only constitutionally valid, but
practically vital to the affected communities. Although predatory lending
certainly is a matter of statewide concern, the specific interests of the communities
most affected by the banned practices make the regulation of this field particularly
amenable to local variations. Oakland’s own interest in preventing predatory
lending provides ample justification for that locality’s enactment of stricter and
more protective regulations designed to ensure that its residents receive adequate
6
Moreover, the Legislature was aware that historically, the subject of
subprime lending has not been addressed by existing regulation. A bill analysis
stating the purposes of Assembly Bill No. 489 states that “the licensing laws under
which subprime lenders operate predate the development of the subprime market
and therefore did not envision the types of problems that have arisen in this
market. In fact many real estate loans are specifically exempted from consumer
protections in these laws.” (Assem. Com. on Appropriations, analysis of Assem.
Bill No. 489 (2001-2002 Reg. Sess.) as amended May 1, 2001, p. 3.)
15
information before saddling themselves with financial obligations that could prove
devastating.
In sum, I agree with the city and the decision of the Court of Appeal below
that Division 1.6 establishes a floor, not a ceiling, for the regulation of predatory
lending practices. As the majority recognizes, the rule of implied preemption is a
“rule of necessity, based upon the need to prevent dual regulations which could
result in uncertainty and confusion.” (Maj. opn., ante, at p. 14.) As discussed
above, the Ordinance provides added protections for its citizens that will not result
in uncertainty or confusion, and absent a clearly evident legislative intent I believe
the Ordinance is not preempted.7
I would affirm the judgment of the Court of Appeal, upholding the validity
of Oakland’s antipredatory lending ordinance.
7
Although the majority does not reach the point, I note that AFSA also
argues that because the Ordinance does not apply to federally chartered lenders, it
is preempted by Civil Code section 1916.12, which creates a mechanism for the
state to respond to changes in federal lending laws by adopting conforming
changes in the regulation of state lenders. I agree with the Court of Appeal that
Civil Code section 1916.12 does not preempt the Ordinance. Section 1916.12
does not evidence a legislative intent to preempt and does not mandate absolute
parity in the treatment of federal and state lenders at either the state or municipal
level, and thus does not preempt the Ordinance.
16
GEORGE, C.J.
WE CONCUR:
KENNARD, J.
MORENO, J.
17
See last page for addresses and telephone numbers for counsel who argued in Supreme Court.
Name of Opinion American Financial Services Association v. City of Oakland
__________________________________________________________________________________
Unpublished Opinion
Original Appeal
Original Proceeding
Review Granted XXX 111 Cal.App.4th 1435
Rehearing Granted
__________________________________________________________________________________
Opinion No. S119869
Date Filed: January 31, 2005
__________________________________________________________________________________
Court: Superior
County: Alameda
Judge: James A. Richman
__________________________________________________________________________________
Attorneys for Appellant:
Severson & Werson, Mark Joseph Kenney, Jan T. Chilton and Donald J. Querio for Plaintiff and Appellant.
Arnold & Porter, Laurence J. Hutt, Dennis G. Lyons, Howard N. Cayne, Michael C. O’Brien and Nancy L.
Perkins for California Bankers Association as Amicus Curiae on behalf of Plaintiff and Appellant.
Horvitz & Levy, Lisa Perrochet and Bradley S. Pauley for National Home Equity Mortgage Association as
Amicus Curiae on behalf of Plaintiff and Appellant.
__________________________________________________________________________________
Attorneys for Respondent:
John A. Russo, City Attorney, Barbara J. Parker, Chief Assistant City Attorney, John Truxaw and Daniel
Rossi, Deputy City Attorneys; Cotchett, Pitre, Simon & McCarthy, Joseph W. Cotchett, Marie Seth
Weiner, Steven N. Williams and Jamie N. Gonzalez for Defendants and Appellants.
Norma P. Garcia for Consumers Union of U.S., Inc., as Amicus Curiae on behalf of Defendants and
Appellants.
Kevin D. Stein for California Reinvestment Committee as Amicus Curiae on behalf of Defendants and
Appellants.
Maeve Elise Brown for the National Housing Project, AARP, Association of Community Organizations for
Reform Now (ACORN), Congress of California Seniors, Consumer Credit Counseling Service of the East
Bay, Lao Family Community Development, Inc., and Spanish Speaking Unity Council of Alameda County,
Inc., as Amicus Curiae on behalf of Defendants and Appellants.
1
Page 2 - S119689 - counsel continued
Attorneys for Respondent:
Paul S. Cohen for Centro Legal de la Raza and La Raza Centro Legal as Amicus Curiae on behalf of
Defendants and Appellants.
Robert Gnaizda for Greenling Institute as Amicus Curiae on behalf of Defendants and Appellants.
Patricia G. Price for Legal Assistance for Seniors as Amicus Curiae on behalf of Defendants and
Appellants
John T. Fellows III, City Attorney (Torrance) for The League of California Cities as Amicus Curiae on
behalf of Defendants and Appellants.
2
Counsel who argued in Supreme Court (not intended for publication with opinion):
Mark Joseph Kenney
Severson & Werson
One Embarcadero Center, 25th Floor
San Francisco, CA 94111-3600
(415) 398-3344
John A. Russo
City Attorney
One Frank H. Ogawa Plaza, 6th Floor
Oakland, CA 94612
(510) 238-6510
Steven N. Williams
Cotchett, Pitre, Simon & McCarthy
840 Malcolm Rd., Suite 200
Burlingame, CA 94010
(650) 697-6000
3
Date: | Docket Number: |
Mon, 01/31/2005 | S119869 |
1 | American Financial Services Association (Plaintiff and Appellant) Represented by Jan T. Chilton Severson & Werson 6379 River Tide Dr Memphis, TN |
2 | American Financial Services Association (Plaintiff and Appellant) Represented by Mark Joseph Kenney Severson, Wersen Et Al 1 Embarcadero Center San Francisco, CA |
3 | American Financial Services Association (Plaintiff and Appellant) Represented by Donald John Querio Severson & Werson 1 Embarcadero Ctr 25th Fl San Francisco, CA |
4 | American Financial Services Association (Plaintiff and Appellant) Represented by Katherine Alexandra Knopoff Severson & Werson 1 Embarcadero Ctr 25FL San Francisco, CA |
5 | City Of Oakland (Defendant and Appellant) Represented by John Anthony Russo Ofc City Attorney 1 Frank H Ogawa Plz 6FL Oakland, CA |
6 | City Of Oakland (Defendant and Appellant) Represented by Joseph W. Cotchett Cotchett Pitre et al 840 Malcolm Rd #200 Burlingame, CA |
7 | City Of Oakland (Defendant and Appellant) Represented by Steven Noel Williams Cotchett Pitre et al 840 Malcolm Rd #200 Burlingame, CA |
8 | League Of California Cities (Amicus curiae) Represented by John L. Fellows Ofc City Attorney 3031 Torrance Blvd Torrance, CA |
9 | National Home Equity Mortgage Association (Amicus curiae) Represented by Lisa Perrochet Horvitz & Levy 15760 Ventura Blvd #1800 Encino, CA |
10 | American Association Of Retired Persons (Amicus curiae) Represented by Maeve Elise Brown Natl Housing Law Project 614 Grand Ave #320 Oakland, CA |
11 | California Bankers Association (Amicus curiae) Represented by Laurence J. Hutt Arnold & Porter 777 S Figueroa St 44FL Los Angeles, CA |
Disposition | |
Jan 31 2005 | Opinion: Reversed |
Dockets | |
Oct 21 2003 | Record requested |
Oct 21 2003 | Petition for review filed by counsel for aplt. (American Financial Svcs. Assoc.) |
Oct 22 2003 | Received Court of Appeal record A100258-file jacket/briefs/loose papers/appendixes/accordian file-also-A097784-file jacket/briefs/two accordian files |
Nov 12 2003 | Answer to petition for review filed by defts-aplts Oakland (timely per CRC 40k) |
Dec 10 2003 | Time extended to grant or deny review to 1-16-04 |
Dec 23 2003 | Petition for Review Granted (civil case) Votes: George, C.J., Kennard, Werdegar, Chin, Brown, and Moreno, JJ. |
Jan 7 2004 | Certification of interested entities or persons filed by Pltf/aplt American Financial Services |
Jan 14 2004 | Request for extension of time filed by appellant for an e.o.t. to 2-23-2004, to file the opening brief on the merits. [Order prepared granting e.o.t. to 2-23-2004. No further extensions will be granted." |
Jan 22 2004 | Extension of time granted On application of appellant and good cause appearing, it is ordered that the time to serve and file the Opening Brief on the Merits is extended to and including February 23, 2004. No further extensions of time will be granted. |
Feb 20 2004 | Opening brief on the merits filed by pltf-aplt, with statutory appendix. |
Mar 22 2004 | Answer brief on the merits filed by defendants and appellants City of Oakland and Redevelopment Agency of the City of Oakland |
Apr 2 2004 | Received: errata to deft-aplt's answer brief on the merits. |
Apr 12 2004 | Reply brief filed (case fully briefed) by aplt |
May 7 2004 | Received application to file Amicus Curiae Brief by AARP, et al. (appln & brief under one cover) |
May 13 2004 | Received application to file Amicus Curiae Brief California Bankers Association, app. & brf under same cover submited with exhbits- under separate covers. |
May 13 2004 | Received application to file Amicus Curiae Brief from National Home Equity Mortgage Assn. in support of aplt. (under same cover) 40k |
May 13 2004 | Received application to file Amicus Curiae Brief from League of Calif. Cities in support of resps. (appln & brief separate) 40k |
May 24 2004 | Permission to file amicus curiae brief granted by League of Calif. Cities in support of aplt City of Oakland. Answers may be filed w/in 20 days. |
May 24 2004 | Amicus curiae brief filed by League of Calif. Cities in support of Aplt City of Oakland. |
May 24 2004 | Permission to file amicus curiae brief granted by AARP, et al in support of aplt City of Oakland. Answers may be filed w/in 20 days. |
May 24 2004 | Amicus curiae brief filed by AARP et al in support of aplt City of Oakland. |
May 24 2004 | Permission to file amicus curiae brief granted by National Home Equity Mortgage Assn. in support of aplt American Financial Services. Answers may be filed w/in 20 days. |
May 24 2004 | Amicus curiae brief filed by National Home Equity Mortgage Assn. in support of aplt American Financial Services. |
May 24 2004 | Permission to file amicus curiae brief granted by California Bankers Association in support of aplt American Financial Services Assn. Answers may be filed w/in 20 days. |
May 24 2004 | Amicus curiae brief filed by Calif. Bankers Assn. in support of aplt American Financial Serv. With one volume of exhibits. |
Jun 11 2004 | Response to amicus curiae brief filed by defts-aplts City of Oakland et al, to the a/c briefs of National Home Equity Mortgage Assn. and Calif. Bankers Assn. |
Jun 14 2004 | Response to amicus curiae brief filed by pltf/aplt American Financial |
Oct 4 2004 | Case ordered on calendar 11/4/04 @ 1:30pm, Sacramento |
Oct 13 2004 | Filed: Request of defendant/appellant to allocate 20 minutes of oral argument time to attorney Steven N. Williams of Cotchett, Pitre, Simon & McCarthy. |
Oct 21 2004 | Order filed The request of counsel for defendant and appellant to allow two counsel to argue on behalf of defendant and appellant at oral argument is hereby granted. |
Oct 21 2004 | Order filed The request of defendant and appellant to allocate to Steven N. Williams 20 minutes of defendant's and appellant's 30 minute allotted time for oral argument is granted. |
Oct 22 2004 | Received: "Petnr's supplemental brief" |
Nov 4 2004 | Cause argued and submitted |
Jan 31 2005 | Opinion filed: Judgment reversed and case remanded to court of appeal for further proceedings. Majority opinion by Brown, J. ----------------joined by Baxter, Werdegar, Chin, JJ. dissenting opinion by George, C.J.-----we concur: Kennard, J. & Moreno J. |
Mar 3 2005 | Remittitur issued (civil case) |
Briefs | |
Feb 20 2004 | Opening brief on the merits filed |
Mar 22 2004 | Answer brief on the merits filed |
Apr 12 2004 | Reply brief filed (case fully briefed) |
May 24 2004 | Amicus curiae brief filed |
May 24 2004 | Amicus curiae brief filed |
May 24 2004 | Amicus curiae brief filed |
May 24 2004 | Amicus curiae brief filed |
Jun 11 2004 | Response to amicus curiae brief filed |
Jun 14 2004 | Response to amicus curiae brief filed |