City Governments and Predatory Lending
27 Pages Posted: 5 Nov 2006
Predatory lending is heavily concentrated in low- and moderate-income neighborhoods and disproportionately affects minorities and the elderly. The consequences of predatory lending are devastating not only to the consumers who fall prey to unscrupulous lenders' tactics, but to the community as a whole. For these reasons, many cities have tried to regulate or prohibit the practice. These efforts face formidable legal obstacles, however. This article examines the problems that cities face in suing as parens patriae on behalf of their residents, the strong possibility that even home rule municipalities will find their efforts preempted by state law, and the growing prospect of federal preemption of state and local initiatives that affect lenders that are subject to regulation by the Office of the Comptroller of the Currency and the Office of Thrift Supervision. Nevertheless, there might be good reasons for cities to consider adopting their own regulations. Even if their authority is limited or nonexistent, municipal ordinances can serve as catalysts for more effective state and federal action and might in some instances affect otherwise unregulated lenders.
Keywords: Predatory lending, parens patriae, home rule municipalities, mortgage lending, Dillon's rule, Homeowners Loan Act, state preemption, federal preemption
JEL Classification: K10, K20, K23, K40, K41
Suggested Citation: Suggested Citation