“City Governments and Predatory Lending” by Jonathan L. Entin and Shadya Y. Yazback

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January 22nd, 2014

Predatory lending has generated increasing attention in recent years.  The practice involves loans to homeowners who frequently cannot pay the associated costs and therefore lose their homes.  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.

This Article assesses the legal challenges that cities can face in trying to deal with predatory lending.  Part I provides an overview of the problem.  Part II focuses on the common law and statutory claims that cities might bring, with particular emphasis on the evidentiary issues that cities can face and the requirements of standing that could severely limit the effectiveness of lawsuits brought by municipalities.  The Article then turns to city efforts to regulate predatory lending pursuant to their home rule authority, efforts that can be stymied both by state laws that supersede municipal ordinances and federal regulations that preempt state and local initiatives.  Part III focuses on home rule, explaining that most courts that have addressed the question have held municipal initiatives to be preempted by state laws.  Part IV shows that the federal government might override much of what cities and states try to do to attack the problem.  The Article concludes that, despite the legal obstacles facing cities that want to regulate predatory lending, local efforts have served as a catalyst for predatory lending policies at the state level and might stimulate more effective national policies as well.

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