Case Title: American Financial Services Ass'n v. City of Oakland

Citation: 

Docket Number: S119869

State: california

Court: California Supreme Court

Date: 2005-01-31T00:00:00Z

Document:
1 
Filed 1/31/05 
 
 
 
IN THE SUPREME COURT OF CALIFORNIA 
 
 
 
AMERICAN FINANCIAL SERVICES 
) 
ASSOCIATION, 
) 
 
 
) 
 
Plaintiff and Appellant, 
) 
 
 
) 
S119869 
 
v. 
) 
 
 
) 
Ct.App. 1/1 
CITY OF OAKLAND et al., 
) 
A100258 & A097784 
 
) 
Alameda County 
 
Defendants and Appellants. 
) 
Super. Ct. No. 2001-027338 
___________________________________ ) 
 
 
“Predatory lending” is a term generally used to characterize a range of 
abusive and aggressive lending practices, including deception or fraud, charging 
excessive fees and interest rates, making loans without regard to a borrower’s 
ability to repay, or refinancing loans repeatedly over a short period of time to incur 
additional fees without any economic gain to the borrower.  Predatory lending is 
most likely to occur in the rapidly growing “subprime” mortgage market, which is 
a market generally providing access to borrowers with impaired credit, limited 
income, or high debt relative to their income.  Mortgages in this market tend to be 
in smaller amounts, and with faster prepayments and significantly higher interest 
rates and fees, than “prime” mortgages. 
 
 
 
2 
In 2001, California enacted legislation to combat predatory lending practices 
that typically occur in the subprime home mortgage market.  (Fin. Code,1 §§ 4970-
4979.8 (Division 1.6).)2  Eight days before Division 1.6 was signed into law by the 
Governor, the City of Oakland adopted an ordinance regulating predatory lending 
practices in the Oakland home mortgage market.3   
We consider whether the Ordinance is preempted by Division 1.6, and if not, 
whether the Ordinance is nevertheless preempted by Civil Code section 1916.12.  
We conclude that the Ordinance is preempted by Division 1.6, and therefore 
reverse the judgment of the Court of Appeal.   
I.  FACTUAL AND PROCEDURAL BACKGROUND4 
On October 15, 2001, American Financial Services Association (AFSA) filed 
this action against the City of Oakland and the Redevelopment Agency of the City 
of Oakland (City) seeking a declaration that the Ordinance was preempted by state 
law, and an injunction against its enforcement.  On October 25, 2001, by 
                                             
 
1 
All further undesignated statutory references are to this code. 
2 
Assembly Bill No. 489 (2001–2002 Reg. Sess.) added Division 1.6.  (Stats. 
2001, ch. 732, §§ 1, 3-5.)  A trailer bill, Assembly Bill No. 344 (2001–2002 Reg. 
Sess.), made certain changes to Division 1.6.  (Stats. 2001, ch. 733, §§ 1–10.)  
Both bills were signed into law on October 10, 2001.   
3 
Oakland’s “Anti-Predatory Lending Ordinance” (Ord. No. 12361 CMS) is 
codified at Oakland Municipal Code chapter 5.33 (Ordinance).  The City of 
Oakland also amended its linked banking services ordinance to require lenders 
seeking to do business with the City or participate in certain projects or programs 
that involved the City, to certify that neither they nor their affiliates engage in 
predatory lending practices, and adopted a resolution seeking a similar 
certification from financial institutions desiring to participate in any development 
projects financed by the Redevelopment Agency.  There is no dispute that the 
validity of the other measures depends on the validity of the Ordinance, and we do 
not discuss them further.   
4 
Because there was no petition for rehearing in the Court of Appeal, we take 
our statement of facts largely from that court’s opinion.  (Cal. Rules of Court, rule 
28(c)(2); People v. Hernandez (2004) 33 Cal.4th 1040, 1045.) 
 
3 
stipulated order, the Ordinance was stayed pending, as relevant here, final 
resolution of this action.  In December 2001, the trial court denied AFSA’s motion 
for a preliminary injunction against enforcement of the Ordinance, and AFSA 
appealed from that order.   
The parties then filed cross-motions for summary judgment.  On June 21, 
2002, the trial court entered an order finding that the Ordinance was preempted to 
the extent that it exempted federally chartered lending institutions from its 
restrictions.  The court held that the sentence exempting such institutions should 
be severed from the Ordinance.  Subject to elimination of the federal exemption, 
the court denied AFSA’s summary judgment motion and granted the City’s.  
Judgment was entered severing the sentence exempting federal lenders, dismissing 
AFSA’s complaint, and deeming the Ordinance valid as modified.   
AFSA appealed from the judgment, and the City cross-appealed.  The Court 
of Appeal ordered the appeals and cross-appeal consolidated.  The court held the 
Ordinance was not preempted by either Division 1.6 or Civil Code section 
1916.12.  It reversed the trial court’s judgment insofar as it ordered severance of 
the portion of the Ordinance exempting federally chartered lenders from its 
coverage.  In all other respects, the judgment was affirmed.  AFSA’s appeal from 
the denial of its motion for a preliminary injunction was dismissed as moot.   
We granted AFSA’s petition for review.   
II. DISCUSSION 
A.  Background 
According to its legislative history, the purpose of Division 1.6 was to 
regulate and thereby curtail predatory lending practices that typically occur in the 
 
4 
subprime mortgage market.5  Division 1.6 applies to any “covered loan,” which is 
a “consumer loan in which the original principal balance of the loan does not 
exceed” $250,000 “in the case of a mortgage or deed of trust,” and either of two 
conditions are met.6  (§ 4970, subd. (b)(1)(A), (B).)  A “consumer loan” is defined 
as “a consumer credit transaction that is secured by real property located in this 
state used, or intended to be used or occupied, as the principal dwelling of the 
consumer that is improved by a one-to-four residential unit.”  (§ 4970, subd. (d).)  
A consumer loan does not include a bridge loan, a reverse mortgage, an open line 
of credit as defined by federal regulation, or a “consumer credit transaction that is 
secured by rental property or second homes.”  (§ 4970, subd. (d).)   
Division 1.6 contains numerous prohibitions and limitations with respect to 
covered loans.  For example, a person who originates covered loans shall not (1) 
“make a covered loan that finances points and fees in excess of” the higher of 
                                             
 
5  
Division 1.6 does not use the term “subprime,” and the term has no 
standard industry definition.  (U.S. Dept. of the Treasury & U.S. Dept. of Housing 
and Urban Development, Joint Rep., Curbing Predatory Home Mortgage Lending 
(June 2000) p. 27.)  It generally, however, refers to loans in smaller amounts, with 
significantly higher interest rates and fees, and faster prepayments, than “prime 
loans.”  (Id. at p. 28.)  “Predatory lending occurs primarily in the subprime 
mortgage lending market.”  (Id. at p. 2.)  Both Division 1.6 and the Ordinance 
address predatory practices regarding such high-cost loans, and the legislative 
history of Division 1.6 is replete with references to “subprime” lending.  
Therefore, like the Court of Appeal, we will at times refer to both the Ordinance 
and Division 1.6 as regulating predatory practices in the “subprime” mortgage 
market.   
6  
“For a mortgage or deed of trust, the annual percentage rate at 
consummation of the transaction will exceed by more than eight percentage points 
the yield on Treasury securities having comparable periods of maturity on the 15th 
day of the month immediately preceding the month in which the application for 
the extension of credit is received by the creditor” or the “total points and fees 
payable by the consumer at or before closing for a mortgage or deed of trust will 
exceed 6 percent of the total loan amount.”  (§ 4970, subd. (b)(1)(A), (B).)   
 
5 
$1,000 or 6 percent of the original principal balance, exclusive of points and fees 
(§ 4979.6); (2) “make or arrange a covered loan unless at the time the loan is 
consummated, the person reasonably believes the consumer . . . will be able to 
make the scheduled payments to repay the obligation based” on specified factors 
(§ 4973, subd. (f)(1)); (3) “pay a contractor under a home-improvement contract 
from the proceeds of a covered loan other than by an instrument payable to the 
consumer,” both the consumer and the contractor, or under certain circumstances 
to a third party escrow agent (id., subd. (g)); (4) “recommend or encourage a 
consumer to default on an existing consumer loan or other debt in connection with 
the solicitation or making of a covered loan that refinances all or any portion of 
the existing consumer loan or debt” (id., subd. (h)); (5) “refinance or arrange for 
the refinancing of a consumer loan such that the new loan is a covered loan that is 
made for the purpose of refinancing, debt consolidation or cash out, that does not 
result in an identifiable benefit to the consumer” after considering various factors 
(id., subd. (j)); (6) “steer, counsel, or direct any prospective consumer to accept a 
loan product with a risk grade less favorable than the risk grade that the consumer 
would qualify for” based on certain information (id., subd. (l)(1)); (7) “finance, 
directly or indirectly, into a consumer loan or finance to the same borrower within 
30 days of a consumer loan any credit life, credit disability, credit property, or 
credit unemployment insurance premiums, or any debt cancellation or suspension 
agreement fees, provided that credit insurance premiums, debt cancellation, or 
suspension fees calculated and paid on a monthly basis shall not be considered 
financed by the person originating the loan” (§ 4979.7); (8) structure a loan 
transaction as an open-end credit plan for the purpose of evading Division 1.6 if 
the “loan would have been a covered loan if the loan had been structured as a 
closed end loan” (§ 4973, subd. (m)(1)); (9) divide any loan transaction into 
separate parts for the purpose of evading Division 1.6 (id., subd. (m)(2)); or 
 
6 
(10) “act in any manner, whether specifically prohibited by this section or of a 
different character [sic], that constitutes fraud” (§ 4973, subd. (n)). 
Moreover, a covered loan shall not (1) include a “prepayment fee or penalty 
after the first 36 months after the date of” loan consummation, but “may include a 
prepayment fee or penalty up to the first 36 months after the date of” loan 
consummation under certain conditions (§ 4973, subd. (a)); (2) “contain a 
provision for negative amortization such that the payment schedule for regular 
monthly payments causes the principal balance to increase, unless the covered 
loan is a first mortgage” and appropriate disclosure made (id., subd. (c)); (3) 
“include terms under which periodic payments required under the loan are 
consolidated and paid in advance from the loan proceeds” (id., subd. (d)); 
(4) “contain a provision that increases the interest rate as a result of a default” 
except under certain circumstances (id., subd. (e)); (5) generally “contain a call 
provision that permits the lender, in its sole discretion, to accelerate the 
indebtedness” (id., subd. (i)); or (6) be made unless a seven-paragraph disclosure 
form set forth in section 4973, subdivision (k)(1), which includes encouragement 
to the borrower to consider financial counseling, is provided to the consumer no 
later than three business days before signing of the loan documents.  A “covered 
loan with a term of 5 years or less may not provide at origination for a payment 
schedule with regular periodic payments that when aggregated do not fully 
amortize the principal balance as of the maturity date of the loan.”  (§ 4973, subd. 
(b)(1).)  “For a payment schedule that is adjusted to account for the seasonal or 
irregular income of the consumer, the total installments in any year shall not 
exceed the amount of one year’s worth of payments on the loan.”  (§ 4973, subd. 
(b)(2).)  In addition, a “person who provides brokerage services to a borrower in a 
covered loan transaction by soliciting lenders or otherwise negotiating a consumer 
loan secured by real property, is the fiduciary of the consumer, and any violation 
 
7 
of the person’s fiduciary duties shall be a violation of” section 4979.5.  (§ 4979.5, 
subd. (a).)  “Except for a broker or a person who provides brokerage services,” 
however, “no licensed person or subsequent assignee shall have administrative, 
civil, or criminal liability for a violation of” section 4979.5.  (§ 4979.5, subd. (b).)   
Similarly, the Ordinance regulates predatory lending practices in home loans 
in Oakland.  (Oak. Mun. Code, §§ 5.33.010, 5.33.030.)  A “home loan” does not 
include a reverse mortgage, and is defined as a “loan of money, including without 
limitation a line of credit or an open-end credit plan,” if certain criteria apply.  (Id., 
§ 5.33.030.)  One criteria is that the “principal amount of the loan does not exceed 
the current conforming first mortgage loan size limit for a single-family dwelling 
as established by the Federal National Mortgage Association.”  (Ibid.)  Since 
January 1, 2005, that amount has been $359,650.7  In addition, the borrower must 
incur the loan primarily for personal, family, or household uses, and the loan must 
be secured in whole or in part by a deed of trust, mortgage, or similar security 
device on real property located within Oakland.  (Oak. Mun. Code, § 5.33.030.)  
The real property must (or will) contain either one-to-four residential units or 
“individual residential units of condominiums or cooperatives,” one of which is or 
will be the borrower’s principal dwelling.  (Ibid.) 
A “high-cost” home loan is a home loan that meets one of two specified 
thresholds.8  (Oak. Mun. Code, § 5.33.030.)  The Court of Appeal observed that 
                                             
 
7 
(Http://www.fanniemae.com/aboutfm/loanlimits.jhtml?p=About 
+Fannie+Mae&s=Loan+Limits [as of Jan. 31, 2005].)   
8 
The “the annual percentage rate of the loan equals or exceeds (a) by more 
than 3 percentage points, if the home loan is a first mortgage, or (b) by more than 
5 percentage points, if the home loan is a junior mortgage, the rate set by the 
required net yield for a 90-day standard mandatory delivery commitment for a first 
mortgage loan from either the Federal National Mortgage Association or the 
Federal Home Loan Mortgage Association, whichever is greater, as such yield is 
 
(footnote continued on next page) 
 
8 
the “ ‘high-cost home loan’ interest rate and fee thresholds are both lower than the 
threshold levels for ‘covered loans’ set by [Division 1.6]. . . .”  “[I]t is undisputed 
that the high-cost loan provisions of the Ordinance would apply to all home loans 
falling under the ‘covered loan’ provisions of the state statute, and also reach some 
loans that do not come under the state law provisions.”   
Like Division 1.6, the Ordinance contains numerous prohibitions and 
limitations with respect to home loans and “high-cost” home loans.  The 
Ordinance prohibits prepayment penalties for high-cost and certain refinanced 
home loans, and limits prepayment penalties for other home loans.  (Oak. Mun. 
Code, § 5.33.040(A).)  For home loans generally, no lender may (1) “finance any 
credit life, credit disability, credit property, or credit unemployment insurance, or 
any other life or health insurance premiums when making a home loan”; (2) 
“recommend or encourage a borrower to default or not to make a payment on a 
                                                                                                                                                              
 
(footnote continued from previous page) 
 
reported on the fifteenth day of the month immediately preceding the month in 
which the application for the home loan is received by the lender; or (2) the total 
points and fees on the loan equal or exceed either 5% of the total loan amount or 
$800, whichever amount is greater.  If the terms of the home loan provide for an 
initial or introductory period during which the annual percentage rate is lower than 
that which will apply after the end of such initial or introductory period, then the 
annual percentage rate to be considered for purposes of this definition is the rate 
which applies after the initial or introductory period.  If the terms of the home loan 
provide for an annual percentage rate that varies in accordance with an index plus 
a margin, then the annual percentage rate to be considered for purposes of this 
definition is the rate that is in effect on the date of loan consummation.  In the case 
of a home loan with a regular interest rate that varies in accordance with an index 
plus a margin, but with an initial or introductory interest rate established in some 
other manner, the annual percentage rate to be considered is the rate that would 
have been in effect on the date of loan consummation were the regular rate 
determined by the index plus the margin to apply, that is, the fully-indexed rate on 
the date of loan consummation.”  (Oak. Mun. Code, § 5.33.030.)   
 
9 
home loan or any other debt, when such lender action is in connection with the 
closing or planned closing of a home loan that refinances all or part of the 
borrower’s debt”; or (3) “make a home loan that violates any applicable provision” 
of certain federal laws regulating lending.  (Oak. Mun. Code, § 5.33.040(B), (C), 
(D).)  
In addition, the following practices are prohibited for high-cost home loans:  
(1) making the loan without obtaining written certification from an independent 
and approved housing or credit counselor that the borrower has contacted the 
counselor and either received counseling about the advisability of the loan 
transaction or waived in writing the counseling option; (2) making a loan unless 
the lender reasonably believes the borrower will be able to make the scheduled 
payments based on certain detailed criteria; (3) financing points and fees 
exceeding $800 or 5 percent of the loan amount, whichever is greater; (4) making 
a loan “that includes terms under which more than two periodic payments required 
under the loan are consolidated and paid in advance from the loan proceeds 
provided to the borrower”; (5) charging a fee to modify, renew, extend, or amend 
a loan or defer any payment, except under certain conditions; (6) including terms 
that allow the lender to accelerate the indebtedness in its discretion except for 
certain circumstances; (7) including a provision increasing the interest rate if the 
borrower defaults or is delinquent, except in certain circumstances; (8) making a 
loan that “pays off all or part of an existing home loan or other debt of the 
borrower, and the borrower does not receive a reasonable and tangible net benefit 
from the new high-cost home loan considering all the circumstances,” as 
delineated; and (9) making a loan that “pays off all or part of an existing home 
loan, and such existing loan” is a specified government or nonprofit loan unless an 
independent housing or credit counselor has determined that the refinance is in the 
borrower’s best interests.  (Oak. Mun. Code, § 5.33.050.) 
 
10 
Thus, Division 1.6 and the Ordinance are similar in that they regulate the 
same subject matter, i.e., predatory lending practices in home mortgages.  
However, Division 1.6 and the Ordinance differ in significant respects with regard 
to how they regulate these predatory practices.  For example, Division 1.6 does 
“not impose liability on an assignee that is a holder in due course” and the 
provisions of the division do not apply to “persons chartered by Congress to 
engage in secondary mortgage market transactions.”  (Fin. Code, § 4979.8.)  The 
Ordinance expressly applies to a holder in due course.  (Oak. Mun. Code, 
§ 5.33.070 [“Any person who purchases or is otherwise assigned a home loan is 
subject to all claims, actions and defenses related to that home loan that the 
borrower, the City Attorney, or others could assert against the original lender”].)  
Moreover, Division 1.6 permits prepayment penalties under certain conditions 
during the first 36 months of the loan; the Ordinance prohibits them for all high-
cost and certain refinanced home loans, and limits them for other home loans.  
(Fin. Code, § 4973, subd. (a); Oak. Mun. Code, § 5.33.040(A).)  In addition, 
Division 1.6 requires that borrowers be encouraged in writing to seek loan 
counseling; the Ordinance prohibits a high-cost home loan being made without 
either the borrower receiving loan counseling or giving the credit counselor a 
written waiver of counseling.  (Fin. Code, § 4973, subd. (k)(1); Oak. Mun. Code, 
§ 5.33.050(A).) 
In addition to other enforcement mechanisms, Division 1.6 and the 
Ordinance both allow for civil and criminal penalties and for civil enforcement by 
borrowers, including punitive damages.  (Fin. Code, §§ 4975, subd. (c), 4977, 
subds. (b), (c), 4978, subds. (a), (b)(2); Oak. Mun. Code, §§ 5.33.080, 5.33.100.)  
However, Division 1.6 imposes civil penalties up to $25,000 per violation; the 
Ordinance imposes such penalties up to the amount of $50,000.  (Fin. Code, 
§ 4977, subd. (b); Oak. Mun. Code, § 5.33.080(D).)  Under Division 1.6, the 
 
11 
amounts collected from such civil penalties are to be used by the “licensing 
agency, subject to appropriation by the Legislature, for the purposes of education 
and enforcement in connection with abusive lending practices.”  (Fin. Code, 
§ 4977, subd. (g).)  The amounts collected by the Ordinance presumably simply go 
into the city coffers.  Punitive damages are available under Division 1.6 “upon a 
finding that such damages are warranted pursuant to Section 3294 of the Civil 
Code,” which requires “clear and convincing evidence that the defendant has been 
guilty of oppression, fraud, or malice” (Civ. Code, § 3294, subd. (a)); the 
Ordinance allows punitive damages “if the court determines by clear and 
convincing evidence that the lender has shown reckless disregard for the rights of 
the borrower.”  (Fin. Code, § 4978, subd. (b)(2); Oak. Mun. Code, 
§ 5.33.080(A)(5).)  Division 1.6 provides that nothing in section 4978, which 
addresses civil liability, “is intended, nor shall be construed, to abrogate existing 
common law provisions prohibiting double recovery of damages.”  (Fin. Code, 
§ 4978, subd. (c).)  The Ordinance, however, expressly notes its remedies “are 
cumulative.  The protections and remedies provided under this chapter are in 
addition to other protections and remedies that may be otherwise available under 
law.  Nothing in this chapter is intended to limit the rights of any injured person to 
recover damages or pursue any other legal or equitable action under any other 
applicable law or legal theory.”  (Oak. Mun. Code, § 5.33.080(E).)   
We now turn to the question of whether these similarities and differences 
may coexist or, if instead, the Ordinance is preempted by Division 1.6.   
B.  Analysis 
“Under article XI, section 7 of the California Constitution, ‘[a] county or city 
may make and enforce within its limits all local, police, sanitary, and other 
ordinances and regulations not in conflict with general laws.’ ”  (Sherwin-Williams 
 
12 
Co. v. City of Los Angeles (1993) 4 Cal.4th 893, 897 (Sherwin-Williams).)  In 
addition, charter cities such as Oakland may adopt and enforce ordinances that 
conflict with general state laws, provided the subject of the regulation is a 
“municipal affair” rather than one of “statewide concern.”  (Cal. Const., art. XI, 
§ 5;9 Oak. City Charter, § 106; see Johnson v. Bradley (1992) 4 Cal.4th 389, 399.)  
Here, however, the City reasonably concedes regulation of predatory practices in 
mortgage lending is one of statewide concern.  Under these circumstances, the 
parties agree that if the Ordinance conflicts with state law, it is preempted.   
A conflict between state law and an ordinance exists if the ordinance 
duplicates or is coextensive therewith, is contradictory or inimical thereto, or 
enters an area either expressly or impliedly fully occupied by general law.  
(Sherwin-Williams, supra, 4 Cal.4th at pp. 897-898.)  Relying solely on the 
Legislature’s failure to include express preemption language and the unique local 
interests of Oakland, the City contends that Division 1.6 sets only “statewide 
minimum standards, not statewide uniform standards, for subprime home 
mortgage lending.”  We conclude that in enacting Division 1.6 the Legislature has 
impliedly fully occupied the field of regulation of predatory practices in home 
mortgage lending, and hence the Ordinance is preempted on this ground.   
“[I]t is well settled that local regulation is invalid if it attempts to impose 
additional requirements in a field which is fully occupied by statute.”  (Tolman v. 
Underhill (1952) 39 Cal.2d 708, 712 (Tolman).)  “[L]ocal legislation enters an 
                                             
 
9 
California Constitution, article XI, § 5, subdivision (a) provides:  “It shall 
be competent in any city charter to provide that the city governed thereunder may 
make and enforce all ordinances and regulations in respect to municipal affairs, 
subject only to restrictions and limitations provided in their several charters and in 
respect to other matters they shall be subject to general laws.  City charters 
adopted pursuant to this Constitution shall supersede any existing charter, and with 
respect to municipal affairs shall supersede all laws inconsistent therewith.”   
 
13 
area that is ‘fully occupied’ by general law when the Legislature has expressly 
manifested its intent to ‘fully occupy’ the area [citation], or when it has impliedly 
done so in light of one of the following indicia of intent:  ‘(1) the subject matter 
has been so fully and completely covered by general law as to clearly indicate that 
it has become exclusively a matter of state concern; (2) the subject matter has been 
partially covered by general law couched in such terms as to indicate clearly that a 
paramount state concern will not tolerate further or additional local action; or (3) 
the subject matter has been partially covered by general law, and the subject is of 
such a nature that the adverse effect of a local ordinance on the transient citizens 
of the state outweighs the possible benefit to the’ locality [citations].”  (Sherwin-
Williams, supra, 4 Cal.4th at p. 898.)   
Here, of course, there is no express preemption language in Division 1.6.  
However, there are clear indications of the Legislature’s implicit intent to fully 
occupy the field of regulation of predatory lending tactics in home mortgages.   
“Where the Legislature has adopted statutes governing a particular subject 
matter, its intent with regard to occupying the field to the exclusion of all local 
regulation is not to be measured alone by the language used but by the whole 
purpose and scope of the legislative scheme.”  (Tolman, supra, 39 Cal.2d at p. 
712; Wilson v. Beville (1957) 47 Cal.2d 852, 859 (Wilson) [same]; In re Lane 
(1962) 58 Cal.2d 99, 102-103 (Lane).)  “State regulation of a subject may be so 
complete and detailed as to indicate an intent to preclude local regulation.  
[Citations.]  In this connection it may be significant that the subject is one which 
. . . requires uniform treatment throughout the state.”  (Chavez v. Sargent (1959) 
52 Cal.2d 162, 177 (Chavez), disapproved on other grounds in Petri Cleaners, Inc. 
v. Automotive Emp., Laundry Drivers and Helpers (1960) 53 Cal.2d 455, 474-
475.) 
 
14 
“The denial of power to a local body when the state has preempted the field 
is not based solely upon the superior authority of the state.  It is a rule of necessity, 
based upon the need to prevent dual regulations which could result in uncertainty 
and confusion.  Thus, the term ‘conflict’ as used in section 11 of article XI has 
been held not to be limited to a mere conflict in language, but applies equally to a 
conflict of jurisdiction.”  (Abbott v. City of Los Angeles (1960) 53 Cal.2d 674, 
682.)  “Whenever the Legislature has seen fit to adopt a general scheme for the 
regulation of a particular subject, the entire control over whatever phases of the 
subject are covered by state legislation ceases as far as local legislation is 
concerned.”  (Lane, supra, 58 Cal.2d at p. 102; id. at p. 105 [“where the state has 
fully occupied the field, there is no room for additional requirements by local 
legislation”]; Wilson, supra, 47 Cal.2d at p. 859 [“general rule that charter 
provisions cannot control in matters of statewide concern where the state has 
occupied the field”].)  “Where a statute and an ordinance are identical it is obvious 
that the field sought to be covered by the ordinance has already been occupied by 
state legislation.”  (Pipoly v. Benson (1942) 20 Cal.2d 366, 371.)   
Thus, in Wilson, supra, 47 Cal.2d at page 856, we held that a person seeking 
compensation for a municipal taking does not lose his claim by failing to file it 
with the city as required by the city charter.  We observed, the “exercise of the 
power of eminent domain is a matter of statewide concern.”  (Id. at p. 859.)  “The 
Legislature has provided a complete and detailed system for exercising the right of 
eminent domain and assessing compensation,” such that charter provisions making 
more onerous the recovery of compensation were invalid.  (Id. at pp. 859-861; id. 
at p. 860 [“The Legislature has fully occupied the field of eminent domain”].)  “If 
the city may enact such legislation or charter provisions the land owner is denied 
equal protection of the laws for the state statute would fix the limitation where the 
condemnor was a public utility but a different one would prevail where the 
 
15 
condemnor was a municipal corporation.  There is no distinction between such 
condemnors.  The city along with public utilities are made equally liable by the 
Constitution.”  (Id. at p. 861.) 
Similarly, in Eastlick v. City of Los Angeles (1947) 29 Cal.2d 661, 664-665 
(Eastlick), the plaintiff’s claim in a personal injury action based on state law 
“concededly was complete as measured by the requirements of the state law.”  
However, the city argued judgment in plaintiff’s favor should be reversed because 
of her failure to itemize the damages in her claim as required by the city charter.  
(Id. at pp. 664-665.)  We held that the Legislature had provided “a general scheme 
for the presentation of such liability claims to be effective throughout the state. . . . 
[W]ith respect to the subjects covered, the [state] statute occupies the entire field 
and it impliedly precludes control to that extent by municipal or local regulation.”  
(Id. at p. 666.)  A municipality “may not impose more onerous conditions 
affecting any other matter covered by the statute, such as the contents of the 
claim.”  (Id. at p. 667.)  “[T]he provisions of that statute ‘are exclusive’ in 
regulating the presentation of claims arising under the Public Liability Act, and no 
city charter provisions relating to the presentation of claims whether adopted 
before or after the effective date of the statute, are applicable within the field 
covered thereby.”  (Id. at p. 668.) 
Likewise in Birkenfeld v. City of Berkeley (1976) 17 Cal.3d 129, 152 
(Birkenfeld), we held that a charter city’s “requirement that landlords obtain 
certificates of eviction before seeking repossession of rent-controlled units cannot 
stand in the face of state statutes that fully occupy the field of landlord’s 
possessory remedies.”  We observed that requiring “landlords to fulfill the 
elaborate prerequisites for the issuance of a certificate of eviction by the rent 
control board before they commence the [state] statutory proceeding would nullify 
the intended summary nature of the remedy.”  (Id. at p. 151.)  Citing Wilson, 
 
16 
supra, 47 Cal.2d 852, and Eastlick, supra, 29 Cal.2d 661, we also noted that 
“[c]ity charter provisions purporting to impose far less burdensome prerequisites 
upon the exercise of statutory remedies have been held to be invalid invasions of 
the field fully occupied by the statute.”  (Birkenfeld, at p. 152; Healy v. Industrial 
Acc. Com. (1953) 41 Cal.2d 118, 122 [If “there is any conflict between charter 
provisions and the compensation sections of the Labor Code, the latter must 
prevail.  Under power expressly granted to it by the Constitution, the Legislature 
has established a complete system of workmen’s compensation which obviously is 
a subject of state-wide concern, and it is well settled that in such matters the 
general law is paramount”]; Lane, supra, 58 Cal.2d at pp. 103-105 [“city 
ordinance attempting to make sexual intercourse between persons not married to 
each other criminal is in conflict with the state law and is void” given the “Penal 
Code sections covering the criminal aspects of sexual activity are so extensive in 
their scope that they clearly show an intention by the Legislature to adopt a 
general scheme for the regulation of this subject,” and “although living in a state 
of cohabitation and adultery is prohibited [citation], neither simple fornication or 
adultery alone nor living in a state of cohabitation and fornication has been made a 
crime in this state”]; Issac v. City of Los Angeles (1998) 66 Cal.App.4th 586, 599 
(Issac) [ordinance giving a utility lien priority over other recorded liens invalid 
“because it disrupts California’s statewide statutory scheme of lien priority”]; id. 
at p. 600 [“lien priorities on real property a matter of statewide concern because 
statewide uniformity in lien priority is essential”].) 
Like the statutory schemes considered in Wilson, Eastlick, and Birkenfeld, 
Division 1.6 comprehensively regulates predatory lending practices in home 
mortgages.  It delineates at length what mortgages are covered, what lending acts 
are prohibited, who can be held liable for violations of Division 1.6, the various 
enforcement mechanisms available, who may invoke such enforcement 
 
17 
mechanisms, and defenses to such violations.  The provisions of Division 1.6 “are 
so extensive in their scope that they clearly show an intention by the Legislature to 
adopt a general scheme for the regulation of” predatory lending tactics in home 
mortgages.  (Lane, supra, 58 Cal.2d at p. 103.)   
Moreover, in regulating such lending tactics in home mortgages, the 
Legislature was not suddenly entering an area previously governed by 
municipalities and unexplored at a statewide level.  To the contrary, as the City 
acknowledges, regulation of mortgage lenders has historically occurred at the 
state, not the municipal, level.  (See, e.g., Fin. Code, §§ 5000 et seq. [Savings 
Association Law], 50000 et seq. [California Residential Mortgage Lending Act]; 
Civ. Code, §§ 2947-2955.5 [mortgage of real property provisions].)  In 
determining whether the Legislature intended to occupy the field of regulation of 
predatory home mortgage lending, we consider this historical role, and view 
Division 1.6 not in isolation, but as part of an overall legislative scheme 
addressing mortgage lending.  As the Legislative Counsel’s Digest to Division 1.6 
notes, “Existing law provides for regulation of banks and savings associations by 
the Department of Financial Institutions.  Existing law provides for regulation of 
real estate brokers by the Department of Real Estate.  Existing law provides for 
regulation of finance lenders and residential mortgage lenders by the Department 
of Corporations.  Existing law provides that willful violations of provisions 
governing savings associations, real estate brokers, and residential mortgage 
lenders are crimes.  [¶]  This bill would impose various requirements on consumer 
loans secured by specified real property, defined as ‘covered loans.’ ”  (Stats. 
2001, ch. 732.)   
Indeed, when asked at oral argument, the City could point to no other 
instance in over 150 years of state history where a municipality had attempted to 
regulate mortgage lending.  Thus, state activity in the area of regulation of 
 
18 
mortgage lending was not only historically dominant, it was exclusive.  (Cf. 
United States v. Locke (2000) 529 U.S. 89, 108 [finding no presumption against 
federal preemption regarding regulation of maritime commerce]; compare Bronco 
Wine Co. v. Jolly (2004) 33 Cal.4th 943, 974 [strong presumption against federal 
preemption of state wine label regulation given state activity in this area 
historically extensive and dominant].)  Thus, mortgage lending is unlike the area 
of gun control law, on which the City and the dissent rely, in which courts have 
concluded that the Legislature has chosen to legislate narrowly, and “rather than 
intending to deprive municipalities of their police power to regulate handgun sales, 
. . . has been cautious about depriving local municipalities of aspects of their 
constitutional police power to deal with local conditions.”  (Calif. Rifle & Pistol 
Assn., Inc. v. City of West Hollywood (1998) 66 Cal.App.4th 1302, 1318; see 
Great Western Shows, Inc. v. County of Los Angeles (2002) 27 Cal.4th 853, 865, 
866 (Great Western) [noting state laws regulating gun shows expressly refer to 
applicable local laws]; dis. opn., post, at pp. 4, 10.)  As one amicus curiae notes, 
the City does not demonstrate that in the area of regulating residential mortgages, 
the Legislature has attempted “to tread lightly on a narrow path.”   
Moreover, it is beyond peradventure that effective regulation of mortgage 
lending, and in particular here abusive practices in such lending, “requires uniform 
treatment throughout the state.”  (Chavez, supra, 52 Cal.2d at p. 177; see Northern 
Calif. Psychiatric Society v. City of Berkeley (1986) 178 Cal.App.3d 90, 101 
[“ ‘Certain areas of human behavior command statewide uniformity, especially the 
regulation of statewide commercial activities’ ”].)  California’s housing market is 
one of its most critical, and securities based on home loans in this market are sold 
not only on a statewide, but on a national level.  (Eggert, Held Up in Due Course: 
Predatory Lending, Securitization, and the Holder in Due Course Doctrine (2002) 
35 Creighton L. Rev. 503, 536 [“Through securitization, the source of capital for 
 
19 
mortgage funding has been transferred from the savings industry, which used 
deposits to fund loans, to the capital markets and the portfolios of institutional 
investors”].)  Commercial reality today would confound any effective regulation 
of mortgage lending based on potentially hundreds of competing and inconsistent 
measures at the local level.  Rather, centralized command over such mortgage 
lending practices provides an essential “regulatory lever.”  (Calif. Fed. Savings & 
Loan Assn. v. City of Los Angeles (1991) 54 Cal.3d 1, 23 (Calif. Fed.).)  
We therefore conclude that through the enactment of Division 1.6, the 
Legislature has fully occupied the field of regulation of predatory tactics in home 
mortgages.  While in other cases the determination of whether the state and local 
laws occupy the same “field” may be somewhat nuanced, little is left to the 
imagination of even the most casual reader here.  Both Division 1.6 and the 
Ordinance regulate predatory lending tactics in home mortgages, and do so in 
parallel fashion.  The Ordinance, like Division 1.6, addresses at length what 
mortgages are covered, what lending acts are prohibited, who can be held liable 
for violations of the Ordinance, the various enforcement mechanisms available, 
who may invoke such enforcement mechanisms, and defenses to such violations.  
As previously observed, it is undisputed the Ordinance applies to at least all home 
loans covered by Division 1.6.  Moreover, the Ordinance regulates many of the 
same predatory practices addressed by Division 1.6, and prevalent in subprime 
lending, such as excessive prepayment fees, making loans without any reasonable 
expectation they can be repaid, refinancing with no benefit to the borrower, 
encouraging default on an existing loan in connection with refinancing that loan, 
financing unnecessary products such as credit insurance, unfairly accelerating 
indebtedness, and financing excessive points and fees.  Thus, the Ordinance is not 
supplementary legislation that in other contexts might be allowed, but a line item 
veto of those policy decisions by the Legislature with which the City disagrees.  In 
 
20 
revisiting this area fully occupied by state law, the Ordinance undermines the 
considered judgments and choices of the Legislature, and is therefore preempted.   
In drafting Division 1.6, the Legislature balanced two compelling and 
competing considerations, i.e., the need to protect particularly vulnerable 
consumers from predatory lending practices and the concern homeowners not be 
unduly hindered in accessing the equity in their own homes.  (See, e.g., Sen. 
Judiciary Com., analysis of Assem. Bill No. 489 (2001-2002 Reg. Sess.) as 
amended June 21, 2001, p. 2 [“Although many subprime lenders offer a vital 
service to some low-income borrowers who would not otherwise qualify for credit, 
many other low-income borrowers have been victimized by improper practices . . . 
referred to . . . as ‘predatory practices’ ”]; Assem. Republican Bill Analysis, 
analysis of Assem. Bill No. 489 (2001-2002 Reg. Sess.) as amended Sept. 6, 2001, 
p. 3 [noting federal regulators “believe that responsible sub-prime lending can 
expand credit access for consumers,” and that “ ‘a practice that can be abusive in 
some contexts can also–in [the] absence of fraud or deception–be highly beneficial 
to consumers . . . . Well meaning but haphazard reactions on the part of the 
regulators . . . may have the unintended consequence of hurting those whom we 
intend to help’ ”]; Assem. Com. on Appropriations, analysis of Assem. Bill No. 
489 (2001-2002 Reg. Sess.) as amended May 1, 2001, p. 2 [“The cycle of high-
cost loan refinancing can ultimately deplete the homeowner’s equity and result in 
foreclosure”].)  While destructive lending practices occur most often in connection 
with subprime lending, such lending is not inherently abusive, and has enabled an 
entire class of individuals with impaired credit to enter the housing market or 
access the equity in their homes.  (See U.S. Gov. Accounting Off., Rep. on Federal 
and State Agencies Face Challenges in Combating Predatory Lending, testimony 
of David G. Wood before Sen. Special Com. on Aging (Feb. 24, 2004) p. 4.)  
Severe regulation of subprime lending might cause lenders to cease making such 
 
21 
loans in California, or preclude borrowers from obtaining a loan based on equity in 
their home even though such loans can serve a legitimate need.  (Dept. of Real 
Estate, enrolled bill rep. on Assem. Bill No. 489 (2001-2002 Reg. Sess.) Sept. 27, 
2001, p. 7.)  Moreover, increased regulation generally entails additional cost, 
decreasing further the availability of loan funds to subprime borrowers.  Thus, the 
Legislature was aware regulation of certain predatory practices in mortgage 
lending, practices which occur most often in the subprime market, could have the 
unintended consequence of hurting those the legislation was intended to help, and 
sought to balance these competing concerns.  The Ordinance, and the possibility of 
other divergent and competing local measures throughout California, upsets that 
balance.  By analogy to federal preemption law, the Ordinance “ ‘stands as an 
obstacle to the accomplishment and execution of the full purposes and 
objectives’ ” of the Legislature.  (Volt Information Sciences, Inc. v. Bd. of Trustees 
of Leland Stanford Junior Univ. (1989) 489 U.S. 468, 477.)   
Taking just one example, Division 1.6 expressly does “not impose liability on 
an assignee that is a holder in due course” and the provisions of the division do not 
apply to “persons chartered by Congress to engage in secondary mortgage market 
transactions.”  (Fin. Code, § 4979.8.)  The Ordinance expressly imposes such 
liability.  (Oak. Mun. Code, § 5.33.070.)  Such an extension of liability to “[a]ny 
person who purchases or is otherwise assigned a home loan” (§ 5.33.070) may 
result in secondary purchasers being hesitant or unwilling to purchase mortgages 
originating in Oakland.  Should other cities adopt a similar extension of liability,10 
                                             
 
10 
Los Angeles has already done so in its antipredatory loan ordinance, added 
January 29, 2003.  (L.A. Mun. Code, ch. XVIII, art. 1, § 181.07, subd. (B)  [“Any 
person who purchases or is otherwise assigned a High-Cost Refinance Home Loan 
is subject to all claims, actions, and defenses related to that High-Cost Refinance 
Home Loan that the Borrower could assert against the original Lender”].)  
 
22 
subprime lending could conceivably be sharply curtailed in the state, despite the 
Legislature’s efforts to avoid such an event.  As AFSA observes, the Ordinance 
“not only contradicts a careful legislative choice, [it] threatens to disrupt 
secondary market transactions, interrupting the flow of loan capital to this state,” 
and “divide the state’s economy into tiny geographic markets.”   
Thus, contrary to the City’s and the dissent’s assertion, Division 1.6 does not 
set “statewide minimum” standards beyond which municipalities are free to 
regulate.  (Dis. opn., post, at p. 9; id. at p. 16.)  Rather, the Legislature’s full 
occupation of this field preempts the Ordinance’s regulation even of those 
mortgages not addressed by Division 1.6, such as loans between $250,000 and 
$359,650.  For the reasons cited above, it is difficult to imagine how the state 
could maintain a centralized and uniform command in regulating predatory tactics 
in home mortgages if municipalities were free to regulate the area with respect to 
loans in amounts in excess of the state statutory ceiling.   
Thus, in Lane we held that a city ordinance, making criminal sexual conduct 
the state Penal Code did not, was preempted because the state had fully occupied 
the field of regulation of sexual conduct by enacting a detailed legislative scheme.  
(Lane, supra, 58 Cal.2d at pp. 103-105; see Issac, supra, 66 Cal.App.4th at p. 601 
[“absence of any specific statewide legislation . . . does not create a statutory 
loophole inviting local legislation, because of the pervasive statutory scheme 
already in place governing lien priority”].)  Similarly here, the Legislature’s 
decision that certain mortgages, such as loans in excess of $250,000, are not 
subject to regulation under Division 1.6 must be respected, and is not an invitation 
for municipal regulation.  The Legislature may reasonably have concluded that 
mortgages in excess of the statutory ceiling were less likely to be attended by the 
predatory practices that it sought to curtail, and hence borrowers should have 
greater freedom to contract in this area.  (See U.S. Dept. of the Treasury & U.S. 
 
23 
Dept. of Housing and Urban Development, Joint Rep., Curbing Predatory Home 
Mortgage Lending, supra, at p. 28 [noting on average subprime loans are smaller 
than prime loans].)  As one amicus curiae notes, “California’s housing market is 
one of the most vital sectors of its economy.  The balances struck by the 
Legislature in this critical area therefore must be seen as a reflection of the 
Legislature’s reasoned assessment of the competing needs to provide mortgage 
capital to the broadest possible segment of the populace while, at the same time, 
discouraging unfair lending practices throughout the state.  Local governments 
should not be free to undermine the Legislature’s efforts in this area . . . by 
striking different policy balances of their own.”   
The City and the dissent essentially assert, however, that Oakland has a 
higher incidence of subprime lending and the predatory tactics associated with 
such lending than other areas of the state, and hence may suffer more than other 
parts of California the resulting blight and poverty such tactics can foster.  (Dis. 
opn., post, at pp. 5-10, 15.)  Assuming this is correct, and while these would be 
important local concerns, they do not give the City a license to regulate a highly 
complex financial area comprehensively addressed by state law.  Such an 
approach would mean that any city which claimed to experience a 
disproportionate number of foreclosures, or instances of securities fraud, could 
simply write its own measures regardless of any confusion these competing 
measures may foster.  Rather, the state’s interest in uniformity in the area of 
mortgage lending law demonstrably transcends the concerns of a particular 
municipality, and is a “convincing basis for legislative action . . . based on 
sensible, pragmatic considerations.”  (Calif. Fed., supra, 54 Cal.3d at p. 18.)  In 
this situation, the City must “defer to legislative estimates regarding the 
significance of a given problem and the responsive measures that should be taken 
toward its resolution.”  (Id. at p. 24.)   
 
24 
The City relies on certain language in Sherwin-Williams, supra, 4 Cal.4th at 
page 904, taken out of context, to support its argument that the failure on the part 
of the Legislature to include express preemption language means that it had no 
implied intent to preempt.  In Sherwin-Williams, there existed at all relevant times 
a statute that provided, “ ‘Nothing in this code shall invalidate an ordinance of, nor 
be construed to prohibit the adoption of an ordinance by, a city, city and county, or 
county, if such ordinance regulates the sale of aerosol containers of paint or other 
liquid substances capable of defacing property.’ ”  (Sherwin-Williams, at p. 899, 
quoting former Pen. Code, § 594.5.)  We observed that former Penal Code section 
594.1, the statute at issue, as originally enacted in 1981, had regulated aerosol 
paint containers larger than six ounces in section 1, an express preemption 
provision regarding sales and possession of such aerosol containers in section 2, 
and a no reimbursement provision in section 3.  (Sherwin-Williams, at p. 900.)  In 
1988, former Penal Code section 594.1 was amended such that it generally applied 
to all aerosol paint containers in section 1, and had a no reimbursement provision 
in section 2.  No express preemption provision was included in the 1988 
amendment.  (Sherwin-Williams, at pp. 900-901.)  
We found that the amended section 594.1 of the Penal Code did not preempt 
a local ordinance governing the display of aerosol paint containers and marker 
pens.  (Sherwin-Williams, supra, 4 Cal.4th at pp. 895-896, 906.)  In so doing, we 
made the following statement, on which the City relies:  “In both 1981 and 1988, 
the Legislature was acting, and presumably knew that it was acting, in the context 
of Penal Code section 594.5, which by its very terms would render any aerosol 
paint legislation ‘non-preemptive,’ at least as to sales.  Hence, in both years, it was 
obligated, and presumably knew that it was obligated, to take affirmative steps if it 
intended to preempt.  In 1981, it took such steps:  it included the preemption 
declaration.  In 1988, it did nothing.  It certainly knew how to copy:  in the earlier 
 
25 
year, it inserted a ‘no reimbursement’ clause; in the later, it inserted a similar 
clause.  To our mind, the conclusion is clear.  In 1981, it expressly intended to 
preempt.  In 1988, it impliedly intended not to.”  (Sherwin-Williams, at p. 904.) 
As can be seen, Sherwin-Williams was decided based on a significantly 
different statutory landscape than we encounter here.  Unlike Sherwin-Williams, 
the City points to no language in Division 1.6 which states that nothing in its 
provisions shall invalidate a local ordinance if such ordinance regulates predatory 
mortgage lending practices.  Hence, the Legislature’s failure to include an express 
preemption provision in Division 1.6 does not ineluctably mean there is no 
implied preemption.  Significantly, aside from the Savings Association Law (Fin. 
Code, § 5000 et seq.), at least two other state laws governing mortgage lenders, the 
California Residential Mortgage Lending Act (Fin. Code, § 50000 et seq.), and the 
mortgage of real property provisions in the Civil Code (Civ. Code, §§ 2947-
2955.5), do not have an express preemption provision.  Indeed, the City does not 
point out for us any state mortgage lending law that has an express preemption 
provision.   
The City and the dissent rely on testimony at a Senate subcommittee hearing 
held shortly before the passage of Division 1.6, urging inclusion of an express 
preemption provision, and the fact that several members of the Legislature had a 
brief conversation regarding preemption at that subcommittee hearing, in asserting 
Division 1.6 does not impliedly preempt the Ordinance.  (Dis. opn., post, at pp. 2-
3.)   
Of course, by definition, the Legislature’s implicit full occupation of a field 
occurs only when there is no express intent in the state law.  We disagree with the 
Court of Appeal’s statement that “when the Legislature is silent on preemption, 
courts presume there is no intent to preempt.”  Adopting this approach would be a 
notable departure from our implied preemption precedents.  Instead, in such 
 
26 
circumstances we consider factors including the language and scope of the 
adopted measure, the history behind the adopted measure, and the history of 
regulation in the area, as we have done in this and other field preemption cases.  
(E.g., Great Western, supra, 27 Cal.4th at pp. 860-867; Tolman, supra, 39 Cal.2d 
at p. 712 [Legislature’s “intent with regard to occupying the field to the exclusion 
of all local regulation is not to be measured alone by the language used but by the 
whole purpose and scope of the legislative scheme”].)  Neither the City nor the 
dissent offers a reason why we would not consider such language, scope, and 
purpose merely because at some point during the bill enactment process the issue 
of express preemption may have arisen.  Nor do they demonstrate that these 
traditional indicators of legislative intent point toward allowing hundreds of cities 
in California to enact their own mortgage lending laws, an area historically 
regulated by the state.   
Taken to its logical extreme, the City’s and the dissent’s approach would 
eliminate the doctrine of implied preemption at least to the extent someone 
somewhere ever suggested to the Legislature an express preemption clause would 
be useful, and the Legislature declined to adopt that suggestion.  Such a standard 
would be easily manipulable, and would punish constituents who attempt to 
educate the Legislature about their concerns to the extent their concerns were not 
addressed in the precise manner proposed to the Legislature.  Moreover, for well 
over a century, mortgage lending has occurred at the state, not municipal level, 
and the effects of such regulation are no longer simply statewide, but national.  
While we cannot know the reasons for the absence of express preemption 
language, the Legislature is deemed to be aware of existing law, and may have 
comfortably assumed that given such state dominance in mortgage lending 
regulation, and having omitted express preemption provisions in other mortgage 
lending laws without such an omission being read as a license for local regulation, 
 
27 
that an express preemption provision was unnecessary.  Indeed, unlike the dissent, 
we are reluctant to reward the opponents of preemption when nothing in the 
statutory language or history suggests they persuaded the Legislature to consider 
relinquishing its historical control of this particular regulatory field and to tolerate 
municipal, and possibly conflicting, regulation.   
In addition, our prior cases establish that even when the Legislature amends a 
bill to add a provision, and then deletes that provision in a subsequent version of 
the bill, this failure to enact the provision is of little assistance in determining the 
intent of the Legislature.  (Graham v. Daimlerchrysler Corp. (2004) 34 Cal.4th 
553, 573, fn. 5 [“ ‘Unpassed bills, as evidence of legislative intent, have little 
value’ ”]; People v. Sparks (2002) 28 Cal.4th 71, 87, fn. 20 [same]; Sherwin-
Williams, supra, 4 Cal.4th at p. 904, fn. 6 [same].)  How much less value is there 
in determining legislative intent when no version of a bill was ever amended to 
include a provision, here express preemption, suggested by a member of the 
public?  Similarly, we have repeatedly observed that “statements of an individual 
legislator, including the author of a bill, are generally not considered in construing 
a statute, as the court’s task is to ascertain the intent of the Legislature as a whole 
in adopting a piece of legislation.”  (Quintano v. Mercury Cas. Co. (1995) 11 
Cal.4th 1049, 1062.)11   
                                             
 
11 
The dissent bases much of its position on a “concession” by AFSA that 
“ ‘the Legislature could say nothing for or against preemption without risking 
defeat of’ ” Assembly Bill No. 489.  (Dis. opn., post, at p. 2; id. at pp. 4, 5.)  The 
dissent points to no evidence AFSA was involved in the legislative process of 
Division 1.6 even as an interested constituent.  More critically, we have repeatedly 
concluded, as noted above, that even the statements of individual legislators are 
not generally considered in construing a statute.  Of how much less worth is a third 
party’s opinion regarding that legislative process?  Indeed, discerning legislative 
intent from an outside party’s “concession” appears not only a novel but a 
problematic approach.  Had AFSA not made such a “concession,” would the 
 
(footnote continued on next page) 
 
28 
Moreover, while the possibility of including express preemption language 
may have arisen at one committee hearing, and in certain letters from 
constituents,12 it is scarcely mentioned in the remainder of Division 1.6’s 
legislative history.  Rather, in that history, the Legislature was instead focused on 
what the terms of the antipredatory lending law should be, which, as we have 
concluded, is its role in this area.  Thus, in various bill analyses recounting bases 
for opposition to Assembly Bill No. 489, and in letters from Assembly Republican 
Leader Dave Cox and Senate Republican Whip Raymond Haynes to Governor 
Davis urging a veto of that bill, there is no mention of the absence of an express 
                                                                                                                                                              
 
(footnote continued from previous page) 
 
dissent then find there was preemption?  As in the case of comments from 
constituents to the Legislature, on which the dissent also relies, our preemption 
principles simply cannot be so arbitrary and malleable.   
Even if there was competent evidence the Legislature had debated and 
rejected the notion of including an express preemption clause, and deliberately 
decided to remain silent, such history would merely show that lawmakers left the 
preemption issue exactly where it would have been if nothing had been said during 
the bill enactment process.  Under such circumstances, and contrary to what the 
dissent claims, there would still be no basis for straying from our traditional 
examination of the language, scope, and purpose of the enacted statutory scheme 
in determining whether the Legislature manifested an implicit intent to occupy the 
field and preempt all local regulation.  Considering that language, scope, and 
purpose here, as delineated at length above, we find clear indications of such an 
intent, and conclude the Ordinance is preempted. 
12 
It is noteworthy that one such letter writer, FannieMae, expressly withdrew 
its opposition to Assembly Bill No. 489, and then urged the bill authors to 
consider adding an express preemption provision.  (FannieMae, letter to Sen. 
Machado and Assemblywoman Migden (Sept. 13, 2001) p. 1.)  Similarly, the 
California Mortgage Bankers Association noted it had withdrawn its opposition to 
Assembly Bill No. 489, was now neutral on both Assembly Bill Nos. 489 and 344, 
and then mentioned it looked forward to working with the Legislature on an 
express preemption provision.  (Cal. Mortgage Bankers Assn., letter to Sen. 
Machado and Assemblywoman Migden (Oct. 4, 2001) p. 1.)   
 
29 
preemption provision.  (See, e.g., Assem. Republican Bill Analysis, analysis of 
Assem. Bill No. 489 (2001-2002 Reg. Sess.) as amended Sept. 6, 2001, p. 2; 
Assem. Republican Bill Analysis, analysis of Assem. Bill No. 489 (2001-2002 
Reg. Sess.) as amended Apr. 5, 2001, pp. 1-2; Assemblyman Dave Cox, letter to 
Governor Gray Davis (Sept. 25, 2001) p. 1; Sen. Raymond Haynes, letter to 
Governor Gray Davis (Sept. 18, 2001) p. 1.)   
Similarly, in recounting the opposition arguments to Assembly Bill Nos. 489 
and 344 (the cleanup bill for Assembly Bill No. 489), the enrolled bill reports for 
the State and Consumer Services Agency, the Department of Real Estate, and the 
Department of Financial Institutions do not mention the absence of an express 
preemption provision.  Thus, the Department of Real Estate enrolled bill report 
states, “[s]ome lenders may leave the California market limiting access to capital 
for those who need it most.  In addition, this bill would effectively preclude equity 
based lending for covered loans even though it has been demonstrated such loans 
have served a legitimate need.”  (Dept. of Real Estate, enrolled bill rep. on Assem. 
Bill No. 489 (2001-2002 Reg. Sess.) Sept. 27, 2001, p. 7.)  Under “[v]otes,” the 
enrolled bill report notes, “[m]any [m]embers who voted ‘no’ expressed concerns 
that the passage of the bill would cause lenders to cease making subprime loans in 
California.  In addition, many [m]embers who voted ‘no’ expressed concern that 
this bill would preclude a borrower from obtaining a loan solely based on the 
equity in the property, even though such loans may serve a legitimate need.”  
(Ibid.; State and Consumer Services Agency, enrolled bill rep. on Assem. Bill No. 
489 (2001-2002 Reg. Sess.) Sept. 20, 2001, p. 7 [“Could eliminate a source of 
funding for a segment of consumers that are not served by traditional, mainstream 
lenders (the same argument that is applied to payday loans).  Could make 
California loans undesirable for purchase and investment.  Bankers argue that 
legitimate lenders that charge higher fees and interest rates to people with poor 
 
30 
credit to compensate for the greater risk of default (known as subprime lending) 
will be unfairly restricted”]; Dept of Financial Inst., enrolled bill rep. on Assem. 
Bill No. 489 (2001-2002 Reg. Sess.) Sept. 27, 2001, p. 8 [“[T]here is some 
concern as to the [e]ffect the provisions of this bill will have on the subprime 
market.  As illustrated by the departure of some licensees in North Carolina, some 
lenders may leave California’s lending market.  The effect on the subprime market 
could be the reduction of mortgage credit available to higher risk borrowers who 
do not otherwise qualify in the prime market”]; Dept. of Real Estate, enrolled bill 
rep. on Assem. Bill No. 344 (2001-2002 Reg. Sess.) Sept. 27, 2001, pp. 2, 4.)  The 
Department of Corporations enrolled bill report did note among other arguments 
in opposition to Assembly Bill No. 489 that “[i]ndustry groups argue that AB 489 
should expressly preempt local ordinances which exceed the protections afforded 
by this bill.  Without preempting city or county ordinances, lenders will continue 
to be exposed to nonuniform restrictions imposed by various municipalities 
throughout California.”  (Dept. of Corporations, enrolled bill rep. on Assem. Bill 
No. 489 (2001-2002 Reg. Sess.) Sep. 27, 2001, p. 8.)  However, this restatement 
of an argument made by certain industry groups does not purport to reflect debate 
within the Legislature.13 
                                             
 
13  
Other than the statements of individual legislators at one Senate 
subcommittee hearing, and testimony by constituents at that same hearing, which 
we have already discussed, the dissent cites nothing in the legislative history of 
Division 1.6 to support its repeated assertion that the Legislature “consciously 
considered including express preemption language in the statewide statute . . ., but 
ultimately omitted any such language from the statute as one of the essential 
elements of a compromise that led to the enactment of the legislation.”  (Dis. opn., 
post, at p. 1, fn. omitted; see, e.g., id. at p. 2 [“Here, there is considerable extrinsic 
evidence . . . that the Legislature specifically considered and purposefully rejected 
an express preemption clause despite extensive lobbying for the inclusion of 
express preemption language in the state statute”]; ibid. [“the issue of preemption 
 
(footnote continued on next page) 
 
31 
The Court of Appeal also noted that the Governor in signing Assembly Bill 
No. 489 expressly lamented the fact it did not contain express preemption 
language, and the Legislative Counsel opined a local ordinance would be valid to 
the extent it did not conflict with state law.  We may not consider such post-
enactment events as a Governor’s signing statement, and not even the City relies 
on this circumstance.  Moreover, the Legislative Counsel’s generalized and routine 
discussion of preemption law is not evidence the Legislature believed an 
ordinance such as the one challenged here would survive a preemption challenge.  
The Legislative Counsel expressly observed, “Because we have not been provided 
with a specific local government ordinance regulating high-cost mortgage lending, 
we . . . discuss generally the grounds for preemption of a local government 
ordinance by state law.”  (Deputy Legis. Counsel L. Erik Lange, letter to Sen. 
Machado (Sept. 7, 2001) p. 1.)   
AFSA also claims that the Ordinance is preempted by Division 1.6 because it 
duplicates and contradicts state law and the Ordinance is preempted by Civil Code 
section 1916.12.  Since we conclude the Ordinance is preempted because by 
enacting Division 1.6 the Legislature has fully occupied the field of regulation of 
predatory practices in home loans, we need not address these additional 
preemption arguments.   
                                                                                                                                                              
 
(footnote continued from previous page) 
 
was arguably at the forefront of the debate over Assembly Bill No. 489”]; id. at 
p. 3 [“silence on the preemption issue was not inadvertent but deliberate, part of a 
legislative compromise”]; id. at p. 4 [“passage of the bill hinged on the inclusion 
or exclusion of express preemption language”]; id. at p. 10 [“All we can be certain 
of is that Division 1.6 was the product of a legislative compromise, and that the 
compromise included deliberate silence on the matter of preemption”].)   
 
32 
DISPOSITION 
The judgment of the Court of Appeal is reversed, and the case remanded to 
that court for further proceedings consistent with this opinion. 
 
 
 
 
 
 
 
 
BROWN, J. 
WE CONCUR: 
 
 
BAXTER, J. 
 
WERDEGAR, J. 
 
CHIN, J. 
 
 
 
 
1
C O P Y  
 
 
AMERICAN FINANCIAL SERVICES ASSN. v. CITY OF OAKLAND 
 
S119869 
 
 
DISSENTING OPINION BY GEORGE, C. J. 
 
I respectfully dissent.  
Past California cases establish that a general statewide statute will be held 
to preempt all local legislative measures only when the state legislation, explicitly 
or impliedly, “clearly indicates” that the Legislature intended to fully occupy the 
field and preclude all local regulation.  (Sherwin Williams Co. v. City of Los 
Angeles, (1993) 4 Cal.4th 893, 898.)  Here, the Legislature consciously considered 
including express preemption language in the statewide statute (division 1.6 of the 
Financial Code, sections 4970-4979.8),1 but ultimately omitted any such language 
from the statute as one of the essential elements of a compromise that led to the 
enactment of the legislation.  In view of this legislative background — which 
demonstrates that the statute does not “clearly indicate” a legislative intent to 
preempt all local legislation — and the distinctive local interest that the City of 
Oakland has in adopting stringent and effective measures to protect its residents 
from the predatory lending practices at issue, I cannot agree with the majority that 
Division 1.6 properly may be found to preempt the Ordinance in its entirety.2  
                                             
 
1  
For convenience, like the majority opinion, I shall refer to the relevant state 
statute as “Division 1.6,” and the relevant local legislation as the “Ordinance.”   
2  
Because the majority concludes that the Ordinance is invalid in its entirety, 
I do not reach the question whether some individual provisions of the local 
enactment may be inconsistent with Division 1.6 and for that reason preempted by 
that legislation. 
 
 
2
I 
Unlike our previous implied preemption cases, this is not simply a case in 
which the Legislature was silent about preemption.  Here, there is considerable 
extrinsic evidence, and a concession from the party arguing in favor of 
preemption, that the Legislature specifically considered and purposefully rejected 
an express preemption clause despite extensive lobbying for the inclusion of 
express preemption language in the state statute.  As plaintiff American Financial 
Services Association (AFSA) itself acknowledges, there were strongly held 
disagreements over preemption between industry representatives and consumer 
proponents of the bill.  Indeed, the record reveals that the subprime lending 
industry vigorously lobbied for express preemption language.    
Under normal circumstances, the mere absence of express preemption 
language would not be dispositive.  But here the party arguing in support of 
preemption explicitly has admitted that there were insufficient votes in the 
Legislature to enact the bill with an express preemption provision.  Specifically, 
AFSA’s brief acknowledges that “the Legislature could say nothing for or against 
preemption without risking defeat of [Assembly Bill No.] 489.  So it elected to 
remain silent.”  (Italics added.)  The majority fails to acknowledge or afford 
appropriate consideration to this admission. 
Moreover, contrary to the majority’s reading of the relevant legislative 
history, I believe this history supports AFSA’s concession.  This is not a situation 
where the preemption issue was abstract or peripheral.  Indeed, the issue of 
preemption was arguably at the forefront of the debate over Assembly Bill No. 
489 (2001-2002 Reg. Sess.).  For instance, the members of the Senate Banking 
Committee that forged the legislative compromise that led to passage of the bill 
heard testimony from Oakland City Councilman Ignacio de la Fuente regarding 
the imminent passage of the Ordinance.  In response to this testimony, a 
 
 
3
committee member expressed concern that without express preemption language, 
there would be a host of different lending policies from community to community.  
In response, the bill’s co-author, Assemblywoman Migden, stated at the 
August 27, 2001, hearing on Assembly Bill No. 489 (2001-2002 Reg. Sess.) by the 
Senate Banking, Commerce and International Trade Committee:  “We’re trying to 
make sure that everyone can live with the bill, industry and consumers alike and 
. . . we’ve decided . . . to be silent on [preemption], which does lend different 
interpretations.”   
At the same hearing, the committee also heard from numerous financial 
industry representatives who urged the committee to include preemption language.  
(Adam Bass of Ameriquest Mortgage Company:  “preemption is a major issue”; 
John Ross, Mortgage Bankers Assn.:  “preemption is a big issue for our 
members”; Brian Kennealy of the Responsible Mortgage Lenders Coalition:  
“preemption is a very, very important issue to us and our members”; Eleanda 
Delgado of Irwin Home Equity Corp., agreeing with the others; Bernard Nevins, 
Cal. Assn. of Industrial Bankers:  preemption “can’t hurt and it would be very bad 
if you didn’t do it”; Phil Eisenberg, American Internat. Group:  “the preemption 
issue is fundamental.  It’s not cursory. It’s not a medium-sized issue.  It’s 
fundamental”; Tom McMorrow, Countrywide Mortgage and First Union:  
“Preemption remains fundamental.”)  This effort by the financial industry to 
include express preemption language in the statute further establishes that silence 
on the preemption issue was not inadvertent but deliberate, part of a legislative 
compromise “to make sure that everyone can live with this bill, industry and 
consumers alike . . . .”  The majority’s assertion that the Legislature’s silence on 
preemption was inadvertent, or that the Legislature believed that express 
preemption language was unnecessary, is simply untenable. 
 
 
4
The majority minimizes the foregoing history by arguing that although an 
express preemption issue “may have arisen” at some point during the bill 
enactment process, the issue was peripheral.  As noted, this ignores AFSA’s 
concession that the issue of express preemption not only “arose,” but threatened to 
derail passage of the bill.  Thus, this is not simply a case where “someone 
somewhere . . . suggested to the Legislature an express preemption clause would 
be useful, and the Legislature declined to adopt that suggestion.”  (Maj. opn., ante, 
at p. 26)  This is a case where passage of the bill hinged on the inclusion or 
exclusion of express preemption language.  Thus, this is not a case where the city 
relies on the mere absence of express preemption to argue against implied 
preemption.  There is significantly more evidence of deliberate exclusion of a 
preemption provision here, and the majority’s concern about the demise of the 
doctrine of implied preemption is unwarranted.   
Nonetheless, it can be argued, as AFSA does, that the stalemate on the 
preemption issue neither supports nor undermines a conclusion as to preemption, 
and that the court should resort to certain default rules about preemption that it has 
developed over the years.  But one of those rules, indeed the principal rule, is that 
legislative intent be clearly indicated.  As the Court of Appeal noted in California 
Rifle & Pistol Assn. v. City of West Hollywood (1998) 66 Cal.App.4th 1302, 1317, 
the Legislature’s failure to include express preemption language may be critical.  
“Claims of implied preemption must be approached carefully, because they by 
definition involve situations in which there is no express preemption.  Since 
preemption depends upon legislative intent, such a situation necessarily begs the 
question of why, if preemption was legislatively intended, the Legislature did not 
simply say so, as the Legislature has done many times in many circumstances.”  
(Ibid.)  Hence, the rule has developed that implied preemption properly can be 
found only when the circumstances “clearly indicate” a legislative intent to 
 
 
5
preempt.  (Sherwin Williams Co. v. City of Los Angeles, supra, 4 Cal.4th 893, 
898.)  The need for such a “clear indication” is especially acute when the extrinsic 
evidence and the concession of the parties demonstrate that the Legislature 
declined to adopt an express preemption provision because such a provision would 
not command a majority of the Legislature.  A legislative stalemate on preemption 
is not an indication of a clear intent to preempt local legislation. 
II 
The majority’s emphasis on state uniformity and historical regulation 
patterns also fails to acknowledge properly the respect this court traditionally has 
accorded to localities regarding issues that have a unique local impact.  As we 
stated in Fisher v. City of Berkeley (1984) 37 Cal.3d 644, 707, “[w]e will be 
reluctant to infer legislative intent to preempt a field covered by municipal 
regulation where there is a significant local interest to be served that may differ 
from one locality to another.”  I am particularly troubled by the majority’s express 
disapproval of the Court of Appeal’s contention that “when the Legislature is 
silent on preemption, courts presume there is no intent to preempt.”  (Maj. opn., 
ante, at p. 25.)  To the contrary, as the Court of Appeal aptly observed in Gluck v. 
County of Los Angeles (1979) 93 Cal.App.3d 121, 133, the common thread of our 
preemption cases is that “if there is a significant local interest to be served from 
one locality to another then the presumption favors the validity of the local 
ordinance against an attack of state preemption.”  
The regulation of predatory lending undoubtedly is an area of statewide 
concern.  Nevertheless, I am not persuaded that the field is exclusively so, thus 
leaving no room for local regulation.  “The significant issue in determining 
whether local regulation should be permitted depends upon a ‘balancing of two 
conflicting interests:  (1) the needs of local governments to meet the special needs 
of their communities; and (2) the need for uniform state regulation.’  [¶]  That 
 
 
6
basic issue, in turn, may in a specific instance be fragmented into the component 
issues which combine to effect its resolution such as whether local legislators are 
more aware of and better able to regulate appropriately the problems of their areas, 
whether substantial geographic, economic, ecological or other distinctions are 
persuasive of the need for local control, and whether local needs have been 
adequately recognized and comprehensively dealt with at the state level.  Certain 
areas of human behavior command statewide uniformity, especially the regulation 
of statewide commercial activities and the conduct of transient individuals, so that 
mobility may not be burdened unreasonably.”  (Robins v. County of Los Angeles 
(1966) 248 Cal.App.2d 1, 9.) 
As the court made clear in Robins, although the need for state uniformity is 
an important consideration in resolving preemption questions, the interests of the 
locality also are entitled to considerable weight.  “The pervasive question to be 
answered is:  Does the demand for uniformity throughout the state outweigh the 
needs of local governments to handle problems peculiar to their communities.” 
(Tri County Apartment Assn. v. City of Mountain View (1988) 196 Cal.App.3d 
1283, 1294.) 
The record in this case establishes that Oakland’s Ordinance was adopted 
because many low-income homeowners in the City of Oakland were targeted by 
unethical mortgage lenders using predatory lending practices.  Many low- and 
moderate-income homeowners in Oakland were unable to obtain conventional 
legitimate financing.  Local conditions allowed predatory lenders to thrive, and 
their practices unfairly stripped homes of equity value and resulted in a number of 
unjust home foreclosures.  Often, through fraudulent means, homeowners were 
charged exorbitant fees and interest rates and unfairly were persuaded to incur 
mortgage debt in excess of their needs or ability to pay.  The record reflects that 
the Oakland City Council, in passing the ordinance in question, found that the 
 
 
7
predatory lending problem in Oakland was particularly aggravated “because of the 
high number of minority and low income homeowners in Oakland, and the 
pressures of gentrification in certain neighborhoods that increase property values 
and home equity,” which have led to a situation in which “Oakland residents in 
low income areas have been perceived to be ‘the house rich and the cash poor’ and 
thus are prime targets for predatory lending practices.”  
Oakland’s findings mirror the conclusions of the United States Department 
of Housing and Urban Development (HUD) in an analysis of almost one million 
mortgages reported nationwide in calendar year 1998 under the Home Mortgage 
Disclosure Act.  (See HUD Rep., Unequal Burden:  Income and Racial Disparities 
in Subprime Lending In America (Apr. 2000), http://www.hud.gov/library 
/bookshelf18/pressrel/subprime.html [as of Jan. 31, 2005] (HUD Report).)  HUD’s 
detailed analysis reached four critical conclusions:  (1) from 1993 to 1998, the 
number of subprime refinance loans increased ten-fold;3 (2) subprime loans are 
three times more likely in low-income neighborhoods than in high-income 
neighborhoods; (3) subprime loans are five times more likely in African-American 
                                             
 
3  
The subprime mortgage market is a market providing credit access to 
borrowers who might not qualify for traditional financing, such as those with 
impaired credit, limited income, or high debt-to-income ratios.   
 
HUD reports that in 1993, there were 80,000 subprime refinance loans 
reported under the Home Mortgage Disclosure Act.  By 1998, this number had 
increased by more than 900 percent to 790,000.  “The magnitude and speed of the 
increase in subprime lending alone — almost 1000% in just five years — creates a 
critical need for greater scrutiny and concern.  While the rapid growth of subprime 
lending may, on the surface, appear to be good news for higher-risk borrowers, 
behind the numbers there is some evidence that some portion of subprime lending is 
occurring with borrowers whose credit would qualify them for conventional loans.  
Subprime lending may expose borrowers to higher up-front fees and interest rates 
than they would bear if they had obtained prime loans.”  (HUD Rep., supra, 
http://www.hud.gov/library/bookshelf18/pressrel/subprime.html.) 
 
 
8
neighborhoods than in white neighborhoods; and (4) homeowners in high-income 
African-American neighborhoods are twice as likely as homeowners in low-
income white neighborhoods to have subprime loans.4  HUD concluded that its 
analysis “clearly demonstrates the exponential growth in subprime lending and its 
disproportionate impact on low-income and particularly, minority homeowners 
and communities throughout the nation.”  (See HUD Rep., supra, 
http://www.hud.gov/library/bookshelf18/pressrel/subprime.html.)   
As HUD’s conclusions illustrate, Oakland’s particular interest in regulating 
subprime loans goes beyond merely protecting its particularly vulnerable citizens.  
As one amicus curiae points out, “predatory lending is not just a consumer 
protection issue; it is a community development issue, because it threatens the 
stability of lower income homeowning neighborhoods . . . .  [¶]  Predatory home 
mortgage lending has enormous impacts on targeted neighborhoods.  Predatory 
lending practices, particularly the phenomenon of ‘asset based lending,’ contribute 
to an increase in the number of foreclosures.  This can result in abandoned houses 
and blighted neighborhoods and contribute to the physical and economic 
deterioration of lower-income, minority, and inner city communities.  
‘Foreclosures, especially in low- and moderate-income neighborhoods turn what 
might be typically viewed as a consumer protection problem . . . into a community 
development problem, in which increased foreclosures lead to property 
abandonment and blight.’ ”  (Quoting HUD Rep., Recommendations to Curb 
                                             
 
4  
HUD also analyzed the prevalence of subprime loans in five urban areas 
(Atlanta, Philadelphia, New York, Chicago, and Baltimore), concluding that a 
study of the five cities “gives a good sense that the trends identified above are 
consistent at the metropolitan level.”  (HUD Rep., supra, 
http://www.hud.gov/library /bookshelf18/pressrel/subprime.html.)   
 
 
9
Predatory Home Mortgage Lending (June 2000) pp. 24-25, available online at 
http://www.treas.gov/press/releases/reports/treasrpt.pdf  [as of Jan. 31, 2005].) 
In view of the community degradation caused by predatory lending, 
Oakland reasonably could have concluded that it was important to include holders 
in due course within the Ordinance’s purview.  The bulk sale of mortgage loans on 
the secondary market is the primary profit incentive for subprime mortgage 
lenders.  (See Eggert, Held up in Due Course:  Predatory Lending, Securitization, 
and the Holder in Due Course Doctrine (2002) 35 Creighton L.Rev. 503, 577 
[noting that a primary reason for the rapid growth of the industry “is that the 
existence of ready capital available to lenders through the securitization of 
subprime loans has dramatically increased their ability to make those loans”].  The 
innovation of selling mortgage loans in bulk is, in fact, what fueled the enormous 
growth of the subprime mortgage industry.  (See id. at p. 578)  As the City of 
Oakland points out, “sales of subprime loans by predatory lenders is the 
inducement and profit-basis for their business practice of encouraging ever higher 
and larger loans to subprime borrowers, i.e. larger ‘inventory’ of loans for sale to 
others — all to the detriment of the consumer public.”  Thus, Oakland reasonably 
could have concluded that because the bulk of subprime loans are sold on the 
secondary market, the Ordinance would have significantly greater deterrence 
effect if borrowers were able to invoke the defense of predatory lending in a 
foreclosure or other enforcement action against the secondary buyers who 
otherwise might be immune from liability.  Otherwise, as one amicus curiae points 
out, “[s]ince most subprime loans are sold on the secondary market, the lack of 
assignee liability provides little incentive to the industry to clean up its practices.” 
The Legislature was free to conclude that treatment of predatory lending 
requires statewide uniformity.  Alternatively, however, it could conclude that only 
a statewide minimum standard of conduct is necessary, and that local jurisdictions 
 
 
10
have some freedom to additionally regulate predatory lenders pursuant to the 
municipal police power to prevent urban decay and neighborhood blight.  Because 
of the local, varying nature of the problem, this is not a case in which having 
differing local standards is wholly illogical.  (Cf. Tolman v. Underhill (1952) 39 
Cal.2d 708, 713 [loyalty oaths for state employees requires uniform treatment]; 
Northern Cal. Psychiatric Society v. City of Berkeley (1986) 178 Cal.App.3d 90, 
102 [no special local interest with regard to regulation of electroshock therapy].)  
All we can be certain of is that Division 1.6 was the product of a legislative 
compromise, and that the compromise included deliberate silence on the matter of 
preemption.   
As discussed above, predatory lending is characterized by loans that are 
aggressively marketed to borrowers who often cannot afford the payments and 
eventually default on the loans.  The city argues that the high rate of default and 
foreclosure has led to the degradation of entire neighborhoods and has contributed 
to the already substantial problem of urban blight in Oakland.  The field of 
predatory lending regulation is one in which conditions peculiar to the locality are 
likely to differ from place to place and where supplemental regulation may well 
fall within the realm of local government.  (Gluck v. City of Los Angeles, supra, 93 
Cal.App.3d 121, 133 [upholding a Los Angeles ordinance regulating the 
placement and display of news racks on public rights of way].)   
This court has acknowledged that the balance of power between state and 
local municipalities recognizes that a one-size-fits-all solution is not always in the 
best interest of the residents of a particular community.  (See, e.g., Calif. Rifle & 
Pistol Assn. v. City of West Hollywood, supra, 66 Cal.App.4th 1302, 1318 
[recognizing the need for caution in “depriving local municipalities of aspects of 
their constitutional police power to deal with local conditions”].)  Keeping this in 
mind, courts have taken care to harmonize the general law and the localized need 
 
 
11
for municipal regulation even where the record reveals a pronounced statewide 
interest and a comprehensive statewide scheme relating to the field.  (See, e.g., 
People v. Butler (1967) 252 Cal.App.2d 584 [upholding ordinance prohibiting 
consumption of alcoholic beverages on public streets despite a comprehensive 
statewide scheme relating to such beverages]; Gleason v. Municipal Court (1964) 
226 Cal.App.2d 584 [upholding local ordinance proscribing loitering despite the 
then-broad sweep of Penal Code section 647].)  The case before us falls squarely 
within this line of precedent.  
The cases cited by the majority do not compel a contrary conclusion.  
Although our numerous preemption cases resist easy harmonization, one theme 
that emerges is that those municipal ordinances that have been found to be 
preempted have been seen as subverting, in some tangible way, the purpose and 
intent of the state statute.  This is true of each of the cases relied upon by the 
majority.  In Wilson v. Beville (1957) 47 Cal.2d 852, we invalidated a local 
ordinance that attempted to impose conditions more stringent than those imposed 
by the state on the exercise of the power of eminent domain by specifying a 
shorter statute of limitations for the filing of a claim.  There, we observed that a 
“city charter cannot give a shorter time, make more onerous the recovery of 
compensation, than the legislation has.”  (Id. at p. 861).  We also observed that “a 
municipality may not curtail or abridge the rights so granted [right to recover for 
tort] by specifying, through charter provision, a shorter time limitation . . . than the 
period fixed by the statute.”  (Ibid., citing Eastlick v. City of Los Angeles (1947) 
29 Cal.2d 661, 666.)  The local legislation thus undermined the statute by making 
the recovery of compensation more onerous.  As such, the local ordinance was 
invalid because the Legislature had “provided a complete and detailed system for 
exercising the right of eminent domain and assessing compensation.”  (Wilson v. 
Beville, supra, 47 Cal.2d at p. 862.) 
 
 
12
Similarly, in Eastlick, we struck down a requirement in the Los Angeles 
City Charter that required a personal injury claimant to itemize the damages in her 
claim.  The requirements for a personal injury claim under state law did not 
require such specificity.  (Eastlick v. City of Los Angeles, supra, 29 Cal.2d 661, 
666.)  Again, as in Wilson, the locality had attempted to abridge and circumscribe 
a state law right, thereby undermining the purpose of the state regulation.  (Ibid.)  
Likewise, in Birkenfeld v. City of Berkeley (1976) 17 Cal.3d 129, 152, we 
invalidated a provision in the Berkeley City Charter that attempted to impose 
additional restrictions on a landlord’s right to evict a tenant.  There, we observed 
that requiring “landlords to fulfill the elaborate prerequisites for the issuance of a 
certificate of eviction by the rent control board before they commence the [state] 
statutory proceeding would nullify the intended summary nature of the [statutory] 
remedy.”  (Id. at p. 151.)  In Isaac v. City of Los Angeles (1998) 66 Cal.App.4th 
586, 600, the Court of Appeal held that an ordinance that gave utility liens priority 
over other recorded liens was preempted “because it disrupts California’s 
statewide statutory scheme of lien priority” by giving the utility lien a priority over 
other liens that the state has determined should have priority.   
The common theme running through these cases is that a locality may not 
impose additional burdensome requirements upon the exercise of state statutory 
remedies that undermine the very purpose of the state statute.  Here, we are 
presented with a fundamentally different relationship between the state statute and 
local regulations.  The Ordinance does not appear to undermine any of the stated 
goals of Division 1.6.  To the contrary, the ordinance grants borrowers additional 
rights not afforded under state law, such as restrictions on prepayment penalties, 
mandatory credit counseling, and the opportunity to present defenses to secondary 
buyers of their mortgages if the borrowers have been victimized by predatory 
lending practices.  Far from subverting Division 1.6, the Ordinance furthers the 
 
 
13
stated goal of the state legislation by providing additional protections to the low-
income borrowers in Oakland who are especially vulnerable to predatory lending 
practices. 
The majority argues, however, that the Ordinance does disrupt the balance 
struck by the Legislature in enacting Division 1.6.  The majority asserts that 
Division 1.6 balanced “the need to protect particularly vulnerable consumers from 
predatory lending practices and the concern homeowners not be unduly hindered 
in accessing the equity in their own homes.”  (Maj. opn., ante, at p. 20.)  The 
majority observes that “[s]evere regulation of subprime lending might cause 
lenders to cease making such loans in California, or preclude borrowers from 
obtaining a loan based on equity in their home even though such loans can serve a 
legitimate need . . . .  Thus, the Legislature was aware regulation of certain 
predatory practices in mortgage lending, practices which occur most often in the 
subprime market, could have the unintended consequence of hurting those the 
legislation was intended to help, and sought to balance these competing concerns.  
The Ordinance, and the possibility of other divergent and competing local 
measures throughout California, upsets that balance.”  (Id., at pp. 20-21.) 
Although it undoubtedly is true that the Legislature struck a balance to 
ensure passage of the bill, the balance was the product of compromise between 
consumer protection interests and finance industry interests.  In order to glean the 
intent of the Legislature regarding preemption, we must examine the entirety of 
that compromise, and not selective parts of it.  As discussed above, that 
compromise included the omission of any provision relating to preemption of local 
legislation.  Yet, the majority concludes that preemption nonetheless was intended, 
emphasizing the Legislature’s supposedly overriding concern regarding the threat 
that patchwork regulation might pose to low-income borrowers’ access to capital.  
This emphasis on the need to prevent undue regulation ignores the principal 
 
 
14
purpose of Division 1.6, which is to improve consumer protection against 
predatory lending practices, not to protect lenders from unduly restrictive 
regulation.   
The majority’s implicit assumption is that Oakland’s Ordinance, by 
providing for stricter regulation of certain areas of subprime lending, necessarily 
will cause lenders to cease making loans in Oakland and in California as a whole.  
(Maj. opn., ante, at pp. 20-21.)  Had a majority of the Legislature agreed with that 
proposition, however, it could be expected that the legislation would have 
included a provision expressly preempting local legislation.  The conscious 
omission of an explicit preemption provision demonstrates that the Legislature 
could not agree that local legislation would undermine or impair the objectives of 
the state legislation.  Furthermore, should the undesirable consequences forecast 
by the majority come to pass, the Legislature, of course, would be free to step in 
and add an express preemption provision to Division 1.6.   
The majority also places great emphasis on the city’s admission that in 
more than 150 years of California history, no municipality has attempted to 
regulate mortgage lending. (Maj. opn, ante, at p. 17.)5  But we never have required 
a locality to prove a historical practice of regulation to establish the validity of a 
local regulation.  Rather, as outlined above, the proper inquiry requires a clear 
indication of legislative intent and a studied balance between the need for state 
uniformity and the particular interest of the locality.  Although historical 
regulatory patterns may be significant in assessing legislative intent, we must 
                                             
 
5  
Of course, as the majority acknowledges, Oakland is not the only 
municipality seeking to regulate in this field.  Los Angeles also recently enacted 
an Ordinance regulating predatory lending practices.  (L.A. Mun. Code, ch. XVIII, 
art. 1, § 181.07, subd. (B)) 
 
 
15
assess that history in context.  The subprime mortgage industry has undergone 
tremendous growth in recent years.  (See ante, fn. 3.)6  During that period, 
predatory lending has had a grossly disproportionate impact on low-income and 
minority homeowners and communities.  Under these circumstances, it is 
reasonable that the communities most affected would see a need to take action to 
protect their residents.   
Thus, despite the circumstance that mortgage regulation historically has 
occurred at the state rather than the local level, we must recognize the concerns 
implicated by the recent rapid escalation of predatory lending.  In view of the 
documented evidence that predatory lending is especially pervasive in low-income 
and minority neighborhoods, it is beyond dispute that Oakland and other similarly 
situated localities have a more significant interest in regulating subprime lending 
than localities that, because of demographics and composition, are not targeted in 
similar ways.  Local regulation thus is not only constitutionally valid, but 
practically vital to the affected communities.  Although predatory lending 
certainly is a matter of statewide concern, the specific interests of the communities 
most affected by the banned practices make the regulation of this field particularly 
amenable to local variations.  Oakland’s own interest in preventing predatory 
lending provides ample justification for that locality’s enactment of stricter and 
more protective regulations designed to ensure that its residents receive adequate 
                                             
 
6  
Moreover, the Legislature was aware that historically, the subject of 
subprime lending has not been addressed by existing regulation.  A bill analysis 
stating the purposes of Assembly Bill No. 489 states that “the licensing laws under 
which subprime lenders operate predate the development of the subprime market 
and therefore did not envision the types of problems that have arisen in this 
market.  In fact many real estate loans are specifically exempted from consumer 
protections in these laws.”  (Assem. Com. on Appropriations, analysis of Assem. 
Bill No. 489 (2001-2002 Reg. Sess.) as amended May 1, 2001, p. 3.)  
 
 
16
information before saddling themselves with financial obligations that could prove 
devastating.  
In sum, I agree with the city and the decision of the Court of Appeal below 
that Division 1.6 establishes a floor, not a ceiling, for the regulation of predatory 
lending practices.  As the majority recognizes, the rule of implied preemption is a 
“rule of necessity, based upon the need to prevent dual regulations which could 
result in uncertainty and confusion.”  (Maj. opn., ante, at p. 14.)  As discussed 
above, the Ordinance provides added protections for its citizens that will not result 
in uncertainty or confusion, and absent a clearly evident legislative intent I believe 
the Ordinance is not preempted.7   
I would affirm the judgment of the Court of Appeal, upholding the validity 
of Oakland’s antipredatory lending ordinance. 
                                             
 
7  
Although the majority does not reach the point, I note that AFSA also 
argues that because the Ordinance does not apply to federally chartered lenders, it 
is preempted by Civil Code section 1916.12, which creates a mechanism for the 
state to respond to changes in federal lending laws by adopting conforming 
changes in the regulation of state lenders.  I agree with the Court of Appeal that 
Civil Code section 1916.12 does not preempt the Ordinance.  Section 1916.12 
does not evidence a legislative intent to preempt and does not mandate absolute 
parity in the treatment of federal and state lenders at either the state or municipal 
level, and thus does not preempt the Ordinance.  
 
 
17
 
 
 
 
 
 
 
GEORGE, C.J. 
WE CONCUR: 
 
KENNARD, J. 
 
MORENO, J. 
 
 
1
See last page for addresses and telephone numbers for counsel who argued in Supreme Court. 
 
Name of Opinion American Financial Services Association v. City of Oakland 
__________________________________________________________________________________ 
 
Unpublished Opinion 
Original Appeal 
Original Proceeding 
Review Granted XXX 111 Cal.App.4th 1435 
Rehearing Granted 
 
__________________________________________________________________________________ 
 
Opinion No. S119869 
Date Filed: January 31, 2005 
__________________________________________________________________________________ 
 
Court: Superior 
County: Alameda 
Judge: James A. Richman 
 
__________________________________________________________________________________ 
 
Attorneys for Appellant: 
 
Severson & Werson, Mark Joseph Kenney, Jan T. Chilton and Donald J. Querio for Plaintiff and Appellant. 
 
Arnold & Porter, Laurence J. Hutt, Dennis G. Lyons, Howard N. Cayne, Michael C. O’Brien and Nancy L. 
Perkins for California Bankers Association as Amicus Curiae on behalf of Plaintiff and Appellant. 
 
Horvitz & Levy, Lisa Perrochet and Bradley S. Pauley for National Home Equity Mortgage Association as 
Amicus Curiae on behalf of Plaintiff and Appellant. 
 
__________________________________________________________________________________ 
 
Attorneys for Respondent: 
 
John A. Russo, City Attorney, Barbara J. Parker, Chief Assistant City Attorney, John Truxaw and Daniel 
Rossi, Deputy City Attorneys; Cotchett, Pitre, Simon & McCarthy, Joseph W. Cotchett, Marie Seth 
Weiner, Steven N. Williams and Jamie N. Gonzalez for Defendants and Appellants. 
 
Norma P. Garcia for Consumers Union of U.S., Inc., as Amicus Curiae on behalf of Defendants and 
Appellants. 
 
Kevin D. Stein for California Reinvestment Committee as Amicus Curiae on behalf of Defendants and 
Appellants. 
 
Maeve Elise Brown for the National Housing Project, AARP, Association of Community Organizations for 
Reform Now (ACORN), Congress of California Seniors, Consumer Credit Counseling Service of the East 
Bay, Lao Family Community Development, Inc., and Spanish Speaking Unity Council of Alameda County, 
Inc., as Amicus Curiae on behalf of Defendants and Appellants. 
 
 
 
 
 
 
 
2
 
 
 
Page 2 - S119689 - counsel continued 
 
Attorneys for Respondent: 
 
Paul S. Cohen for Centro Legal de la Raza and La Raza Centro Legal as Amicus Curiae on behalf of 
Defendants and Appellants. 
 
Robert Gnaizda for Greenling Institute as Amicus Curiae on behalf of Defendants and Appellants. 
 
Patricia G. Price for Legal Assistance for Seniors as Amicus Curiae on behalf of Defendants and 
Appellants  
 
John T. Fellows III, City Attorney (Torrance) for The League of California Cities as Amicus Curiae on 
behalf of Defendants and Appellants. 
 
 
 
 
 
 
 
 
 
 
3
 
 
 
 
Counsel who argued in Supreme Court (not intended for publication with opinion): 
 
Mark Joseph Kenney 
Severson & Werson 
One Embarcadero Center, 25th Floor 
San Francisco, CA  94111-3600 
(415) 398-3344 
 
John A. Russo 
City Attorney 
One Frank H. Ogawa Plaza, 6th Floor 
Oakland, CA  94612 
(510) 238-6510 
 
Steven N. Williams 
Cotchett, Pitre, Simon & McCarthy 
840 Malcolm Rd., Suite 200 
Burlingame, CA  94010 
(650) 697-6000