Judge Nullifies Montgomery Lending Law

A state judge has struck down a Montgomery County law that authorized stiffer penalties against predatory lending practices, saying the measure was beyond the county's authority under the Maryland constitution.

The law, sponsored by County Council member Tom Perez (D-Silver Spring), would have allowed fines of up to $500,000 against mortgage lenders if it could be proved that they discriminated against minority borrowers by giving them more expensive loans with onerous repayment terms. The maximum fine had been $5,000.

Lenders opposed the measure, saying it was too vague and exposed them to financial risk. Dozens of lenders said the law would force them to stop doing business in the county, raising the possibility of less competition and higher interest rates.

The American Financial Services Association, a trade group representing mortgage lenders, sued the county in February, arguing that states, not local governments, have the authority to regulate mortgage lending.

In March, Circuit Judge Michael D. Mason issued a temporary injunction against the law. On the same day, the Bush administration released an opinion saying the law bypassed federal authority.

In his decision striking down the law, Mason wrote: "No matter how noble the purpose, a 'general' law is beyond the authority of the county to enact and is unconstitutional." The law "has substantial territorial effect beyond the borders of Montgomery County," he wrote.

"It concerns matters that are of significant interest to the citizens of the entire state."

It was not clear last night how the county would respond to Mason's decision.

Perez said he was not surprised by the ruling given the injunction. But he said he still believed in the law's purpose.

"I think we would have local authority to enact meaningful laws to protect victims of discrimination," he said.

In a written statement yesterday, the American Financial Services Association said that in opposing Montgomery County's law -- as well as similar ones in other jurisdictions -- the organization "did not seek to defend or allow abusive lending, a practice condemned by AFSA and its members."

"Our objective has been, and continues to be, a logical regulatory structure for mortgage lending," the association said.

The organization said the ruling "resolves uncertainty that has surrounded Montgomery County's mortgage market since last year and preserves borrowers' access to mortgage credit."