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Lenders Halt Exodus from County in Maryland

Lenders Halt Exodus from County in Maryland

Judge grants injunction on law in Montgomery County

March 8, 2006


As lenders prepared to exit a Maryland county because of a new predatory lending law that included exorbitant fines, a judge stepped in to suspend it.Montgomery County Circuit Court Judge Michael D. Mason granted a temporary injunction Tuesday that halts implementation of the county’s recently enacted predatory lending ordinance.

The court has set a hearing on the case July 6, according to American Financial Services Association, which filed the suit against the county.

“With the court’s decision to stay Montgomery County’s mortgage lending ordinance, current and prospective homeowners in the county will continue to have access to a wide range of mortgage products and services while the association’s legal challenge is underway,” the association said in a statement.

“While today’s ruling is a good first step, borrowers and lenders are not out of the woods yet. AFSA will vigorously pursue a permanent injunction for the ordinance,” it said.

The group argued that current law already protects buyers against predatory lending.

The Mortgage Bankers Association told reporters in a conference call Monday that the law, which increased the fine for predatory lending violations from $5,000 to $500,000, had resulted in 50 lenders no longer doing business in the county.

“The negative impact of this bill,” Erick Gustafson, MBA’s director of government affairs, in a statement issued after Tuesday’s ruling, “far outweighs any benefits to consumers.”

MBA and others argued that the law is detrimental to borrowers, particularly those with poor credit and low incomes, because it would eventually dry up sources of loans. Now that the court has ruled, MBA is calling for the county government to repeal the law.

“MBA believes the ordinance must be repealed, and the judge’s ruling today is an important step toward that goal,” Gustafson said. “The ordinance itself created a crisis of credit availability because it would have opened the door for frivolous and unfounded claims of predatory conduct.

“As a result, consumers in Montgomery County would have had far fewer credit options when they tried to buy, refinance or take out a second mortgage on a house,” he said.

“The Montgomery County ordinance does not add additional protections for consumers, but it does add significant ambiguity for lenders,” MBA’s Gustafson said.

A Montgomery County Council member has called for the ordinance to be repealed.

“Many lenders have already decided that (the ordinance) presents them with unquantifiable risks,” council member Mike Knapp said in a statement, “and therefore is so potentially onerous that they have chosen not to provide loans to persons residing in Montgomery County.

“I have heard from numerous frustrated residents who were in the process of securing loans while they would have had no problems in doing so last week, this week they can’t,” Knapp said. “There is a very real risk that this legislation will now limit the opportunity for some of our neediest residents to secure a loan, an unintended buy very real consequence.”

The MBA said the answer to legislation such as the ordinance passed by Maryland County is to have Congress enact nationwide standards for cracking down on predatory lending. But that is unlikely this year, the association said.

The federal government did come down on the law Tuesday when the Office of Thrift Supervision said that local laws can not preempt federal law when it comes to regulating federally-chartered lenders.

Patrick Crowley is a feature journalist and blogger for He is also a reporter, blogger and columnist for The Cincinnati Enquirer.
e-mail Patrick at:

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