Sheppard Mullin Financial Institutions Law Blog

Is a separate agreement whereby a borrower pays a fee for a locked-in interest rate itself subject to the three-day cancellation right under the Truth In Lending Act?

Yes, according to the Ninth Circuit in Jones v. e*Trade Mortgage Corporation, 05 C.D.O.S. 1283.

Here, the bank sent the borrowers a separate agreement under which they paid $400 for a locked-in interest rate. The bank approved the loan and then sent the borrowers the required three-day cancellation notice under TILA. The borrowers backed out and demanded the return of the $400 fee. The bank refused, and the district court dismissed the borrowers' complaint for failure to state a TILA claim.

Does California state law combating predatory lending practices preempt Oakland's predatory lending law?

Yes, according to the 4-3 decision by the California Supreme Court in American Financial Services Association v. City of Oakland 05 C.D.O.S. 845 (January 31, 2005).

In 2001, California enacted new laws outlawing certain "predatory lending" practices in the subprime home mortgage market (see sections 4970-4979.8 of the Financial Code). Just days before the new state law was signed, Oakland adopted an ordinance regulating predatory lending in the Oakland home mortgage market. In a 4-3 opinion written by Justice Janice Brown, the California Supreme Court held that the Oakland law was preempted. Why? Because in enacting the new state predatory lending law, the "Legislature has fully occupied the field of regulation of predatory practices in home loans..."