In the

United States Court of Appeals

For the Seventh Circuit ____________

No. 02-1018

ILLINOIS ASSOCIATION OF MORTGAGE BROKERS,

Plaintiff-Appellant,

v.

OFFICE OF BANKS AND REAL ESTATE

and WILLIAM A. DARR,

Defendants-Appellees.

____________

Appeal from the United States District Court

for the Northern District of Illinois, Eastern Division.

No. 01 C 5151—Charles R. Norgle, Sr., Judge.

____________

ARGUED SEPTEMBER 17, 2002—DECIDED OCTOBER 21, 2002

____________

Before FLAUM, Chief Judge, and EASTERBROOK and

RIPPLE, Circuit Judges.

EASTERBROOK, Circuit Judge. The Alternative Mortgage

Transaction Parity Act of 1982, 12 U.S.C. §§ 3801-06,

provides that state-chartered lenders may make variableinterest home mortgage loans (called “alternative mortgage

transactions”) on the same terms as federally-chartered

lenders, “notwithstanding any State constitution, law, or

regulation.” 12 U.S.C. §3803(c). The Home Ownership and

Equity Protection Act of 1994, codified at 15 U.S.C.

§§ 1602(aa), 1610, 1639, and 1640, forbids lenders from
2 No. 02-1018

using particular terms in home mortgage transactions. The

question presented by this appeal is whether the 1994 Act’s

regulation of all home mortgage lenders repeals the 1982

Act’s rule of parity between state and federal institutions in

alternative mortgage transactions. The district court answered yes and held that, as a result, regulations imposing

extra restrictions on state-chartered lenders in Illinois are

valid. Illinois Ass’n of Mortgage Brokers v. Office of Banks

& Real Estate, 174 F. Supp. 2d 815 (N.D. Ill. 2001). We

answer no. The 1994 Act does not repeal the 1982 Act in so

many words, and implied repeal occurs only when the

statutes are irreconcilable. See J.E.M. Ag Supply, Inc. v.

Pioneer Hi-Bred International, Inc., 534 U.S. 124, 141-44

(2001) (collecting authority). All the district court concluded, however, is that the 1982 and 1994 Acts concern the

same subject matter. That is not, and never has been,

enough to show that the most recent statute repeals its

predecessors. Substantive rules in one law are not logically

incompatible with an equal-treatment rule in another, so

both remain effective.

What Illinois has done is to issue regulations that augment—for state-chartered lenders only—restrictions of the

kind imposed by the 1994 Act. The handling of balloon

payments provides an example. Under the 1994 Act, if a

home equity loan carries an interest rate more than 10%

over the rate for Treasury securities of comparable maturity, then the loan may not include a balloon payment

(which effectively compels refinancing) unless the loan’s

duration exceeds five years. 15 U.S.C. §§ 1602(aa), 1639(e).

Under the state regulations, if a home equity loan carries

an interest rate more than 6% over the Treasury rate (8%

for junior mortgages), then no balloon payment may be

scheduled before the loan’s 15th year. 38 Ill. Admin. Code

§§ 1050.155, 1050.1270. Thus a federal lender lawfully may

extend mortgage credit at 9% over the Treasury rate with

a balloon payment in Year 3, or at 12% over the Treasury
No. 02-1018 3

rate with a balloon payment in Year 6, but a lender chartered in Illinois is forbidden to make either of these loans.

The state regulations create other differences concerning

prepayment penalties and amortization schedules, but it is

unnecessary to detail them.

Plaintiff, an association of mortgage lenders, filed this

suit seeking a declaratory judgment that the state regulations are preempted by virtue of §3803(c) as applied to

lenders that comply with all applicable federal laws and

regulations. The district judge concluded that the Association has standing as a representative of its members. 174 F.

Supp. 2d at 818-20. The point is uncontested on appeal, but

because it is jurisdictional we have given it independent

consideration and agree with the judge’s conclusion.

Another jurisdictional issue escaped the district judge’s

eye, however: the state agency contends that under the

eleventh amendment a federal court lacks jurisdiction to

entertain the suit. The Office of Banks and Real Estate, an

agency of state government and thus part of the State of

Illinois, is entitled to the State’s immunity from suit. The

Association contends that as long as it seeks prospective

relief the eleventh amendment melts away. This is wrong,

see Cory v. White, 457 U.S. 85, 90-91 (1982); Alabama v.

Pugh, 438 U.S. 781 (1978), but there is no need to consider

whether the Constitution gives Illinois an immunity unless

some federal statute gives the Association a claim for relief.

See Lapides v. University of Georgia, 122 S. Ct. 1640, 1643

(2002). Section 3803(c) does not authorize lawsuits (though

it may provide a defense to them). To come into court as the

plaintiff, the Association relies on 42 U.S.C. §1983. Yet a

state is not a “person” for purposes of §1983 and therefore

may not be named as a defendant in a suit under that law.

See Arizonans for Official English v. Arizona, 520 U.S. 43,

69 (1997); Will v. Michigan Department of State Police, 491

U.S. 58 (1989). Plaintiff has not called to our attention any
4 No. 02-1018

other relevant federal statute that authorizes a suit directly

against a state or one of its agencies.

Nonetheless the agency’s director, William Darr, a second

defendant, is subject to suit even though relief would run

against him in his official capacity. See Will, 491 U.S. at 71

n.10. For such a person, Ex parte Young, 209 U.S. 123

(1908), eliminates any constitutional impediment to suit.

See also Verizon Maryland Inc. v. Public Service Commission of Maryland, 122 S. Ct. 1753 (2002). Although the

Supremacy Clause does not of its own force create rights

enforceable under §1983, some statutes with preemptive

force may do so. See Golden State Transit Corp. v. Los

Angeles, 493 U.S. 103, 107-08 (1989). It is not necessary for

us to determine whether the 1982 Act is such a statute, cf.

Gonzaga University v. Doe, 122 S. Ct. 2268 (2002), because

federal jurisdiction is supplied by 28 U.S.C. §1331 in any

event. For the reasons given in Illinois v. General Electric

Co., 683 F.2d 206, 211 (7th Cir. 1982), that statute supplies

jurisdiction when the plaintiff seeks declaratory relief

against regulation by a state agency and contends that the

agency has violated federal law by adopting particular

regulations. See also Northeast Illinois Regional Commuter

R.R. v. Hoey Farina & Downes, 212 F.3d 1010, 1015-16 (7th

Cir. 2000). So the agency must be dismissed as a defendant,

but the suit may proceed against Darr.

This opinion’s opening paragraph says all that is necessary to resolve the principal issue on appeal: the 1994 Act

neither repeals the 1982 Act in terms nor is logically inconsistent with it, so the two may coexist. Accord, National

Home Equity Mortgage Ass’n v. Face, 239 F.3d 633 (4th Cir.

2001). The Office of Thrift Supervision, which issues the

federal regulations in this field, agrees; the explanation

accompanying its latest set of rules, 67 Fed. Reg. 60542

(Sept. 26, 2002), demonstrates that the OTS views the 1982

Act as fully effective today. Illinois tries to make headway

with 15 U.S.C. §1610(b), which provides:
No. 02-1018 5

Except as provided in section 1639 of this title, this

subchapter does not otherwise annul, alter or affect

in any manner the meaning, scope or applicability

of the laws of any State, including, but not limited

to, laws relating to the types, amounts or rates of

charges, or any element or elements of charges,

permissible under such laws in connection with the

extension or use of credit, nor does this subchapter

extend the applicability of those laws to any class

of persons or transactions to which they would not

otherwise apply. The provisions of section 1639 of

this title do not annul, alter, or affect the applicability of the laws of any State or exempt any person

subject to the provisions of section 1639 of this title

from complying with the laws of any State, with

respect to the requirements for mortgages referred

to in section 1602(aa) of this title, except to the extent that those State laws are inconsistent with any

provisions of section 1639 of this title, and then

only to the extent of the inconsistency.

This tells us that the 1994 Act does not itself preempt any

state law—except that state laws about the mortgage

transactions defined in §1602(aa) may not be more tolerant

than the federal floor adopted in §1639. This does not alter

the preemptive effect of other statutes, however; §1610(b)

deals with “this subchapter” of Title 15, while the 1982 Act

is codified in Title 12. Nor, contrary to Illinois’ view, does

§1610(b) say that if a given loan meets the criteria of

§1602(aa) then states may add restrictions to the list in

§1639. Although §1610(b) provides that nothing in the 1994

Act forbids states from regulating, it does not foreclose the

possibility that some other federal law contains such a

prohibition.

The City of Chicago, appearing as amicus curiae, adopts

a different tack. It contends that §3803(c) does not provide
6 No. 02-1018

the clear statement required for preemption. What §3803(c)

says is this:

An alternative mortgage transaction may be made

by a housing creditor in accordance with this section, notwithstanding any State constitution, law,

or regulation.

Nothing could be clearer, provided that we know what an

“alternative mortgage transaction . . . in accordance with

this section” is. Section 3802(1) defines it this way:

the term “alternative mortgage transaction” means

a loan or credit sale secured by an interest in residential real property, a dwelling, all stock allocated

to a dwelling unit in a residential cooperative housing corporation, or a residential manufactured

home (as that term is defined in section 5402(6) of

Title 42)—

(A) in which the interest rate or finance

charge may be adjusted or renegotiated;

(B) involving a fixed-rate, but which implicitly permits rate adjustments by having

the debt mature at the end of an interval

shorter than the term of the amortization

schedule; or 

(C) involving any similar type of rate,

method of determining return, term, repayment, or other variation not common to traditional fixed-rate, fixed-term transactions,

including without limitation, transactions

that involve the sharing of equity or appreciation;

described and defined by applicable regulation[.]

This points in turn to “applicable” regulations issued by the

OTS. Given the way §3802(1) works, a loan is not an “alter-
No. 02-1018 7

native mortgage transaction . . . in accordance with this

section” unless it meets the descriptions and definitions of

the OTS’s regulations. That’s the point of the statute’s title:

the Alternative Mortgage Transaction Parity Act of 1982.

State lenders get to do what federal lenders are allowed to

do by federal statutes and OTS regulations. Yet, Chicago

points out, these regulations may be opaque—and our reading confirms that nonspecialists may struggle to grasp their

meaning. Because the federal regulations may be unclear,

and the statute makes preemption turn on the content of

these regulations, the preemption clause itself does not

meet the Supreme Court’s clarity requirement, Chicago insists.

Some opinions say that Congress must be clear when it

sets out to oust states from exercising normal regulatory

powers. How far this principle extends beyond the norm

identifying states and municipalities as targets of federal

regulation, see Gregory v. Ashcroft, 501 U.S. 452 (1991), is

not a subject we need plumb. For §3803(c) is as express as

a preemption clause gets. The Supreme Court has never

insisted that clarity extend to all of the operative rules. The

holding in Gregory was that the ADEA did not apply to state

judges because Congress had not made the statute’s domain clear—and thus had not necessarily precipitated the

constitutional conflict resolved in Kimel v. Board of Regents, 528 U.S. 62 (2000). The Court did not hold or even

hint that if the statute unambiguously covered senior state

officials, it nonetheless would be deemed inapplicable because some of the ADEA’s substantive rules may be hard to

interpret. Once Congress has made the decision to displace

state rules with federal rules, debate about the content of

those federal rules does not rescind the displacement.

Otherwise pension law and labor law would remain the

domain of state rules—for though both pension and labor

statutes clearly preempt state law, there are many ambiguities in the federal rules. Just last Term, for example, the
8 No. 02-1018

Supreme Court divided five to four on the question whether

ERISA permits Illinois to review coverage decisions made by

welfare-benefit plans. See Rush Prudential HMO v. Moran,

122 S. Ct. 2151 (2002). It answered “to an extent” (see 122

S. Ct. at 2167 n.10, 2169-70 & nn.15, 16 for the reservations), and four Justices would have answered with a flat

“no.” Chicago apparently believes that because there was

doubt, the answer should have been a ringing “yes,” but

that is not how any of the nine Justices approached the

matter.

Chicago’s further argument that §3803(c) is unclear

because it applies only to “housing creditors”—which means

to lenders licensed by state law to make home mortgage

loans, see 12 U.S.C. §3802(2)—does not put a dent in the

statute’s scope. What Chicago is getting at is that states

might make compliance with substantive rules (such as “no

balloon payments before 15 years”) a condition of obtaining

a license; and an unlicensed lender can’t take advantage of

the preemption clause. Suffice it to say that Illinois has not

itself argued that it can pull a fast one on Congress in this

fashion. The point of the 1982 Act was to produce parity in

the terms on which lenders may extend credit. Smuggling

the regulation of terms into the criteria for issuing licenses,

and then arguing that state-chartered lenders lose all

benefits of the 1982 Act, would be a stunt unworthy of the

State of Illinois—and ineffective as a matter of federal law.

Nonetheless, Illinois does offer a back-door argument of

its own. It contends that §3803(c) preempts regulation of

“alternative mortgage transactions” but not particular

terms of those transactions. Let us return to the balloonpayment example. Illinois contends that a balloon payment

is not itself an “alternative mortgage transaction,” so that

it may regulate lenders’ use of balloon payments in alternative mortgage transactions even if §3803(c) survives the

1994 Act (as we have held that it does). The premise of this

argument is doubtful; §3802(1) defines an alternative mort-
No. 02-1018 9

gage transaction as a variable-interest (or equity-sharing)

home equity loan, and §3802(1)(B) specifies that a balloon

payment makes an interest rate variable (by precipitating

refinancing at the latest market rate) even if the rate

nominally is fixed. So a balloon payment in a home mortgage loan is one feature that by definition identifies the

loan as an “alternative mortgage transaction.” Let this

pass. The deeper point is that §3803(c) does not depend on

the means a state chooses. The statutory question is

whether a loan is an alternative mortgage transaction, not

whether a particular term in the loan documents is itself an

alternative mortgage transaction. If a given transaction is

an “alternative mortgage transaction”—that is, if it is a

variable-rate home equity loan that a federal lender could

make under OTS regulations—then all state rules regulating that loan are preempted to the extent required for

parity. If a state could say “we’re regulating the terms but

not the transaction” then the 1982 Act would have been a

dead letter from the moment the President signed the

legislation, for its only objective is to permit state lenders

to offer terms from the palette of federal lenders.

Thus we hold that the new state regulations are preempted under §3803(c) to the extent that they block state

lenders from extending credit on terms open under federal

regulations, when the lenders actually comply with the

federal regulations. (As the fourth circuit observed in Face,

239 F.3d at 635-36, 640, states retain full regulatory

authority with respect to lenders that do not comply with

federal rules.) It remains to be determined which, if any, of

the state regulations has a prohibited effect. The answer

depends not only on the provisions of the federal regulations but also on the way in which these regulations work.

At one time the OTS believed that state lenders always

could use whatever terms were lawful for federal lenders.

More recently, however, the OTS has taken the position that

only federal regulations accompanied by a declaration of
10 No. 02-1018

preemptive force affect state law. See 67 Fed. Reg. at 60548

n.36. On this view states may put off limits to state-chartered lenders some of the terms that are lawful for federal

lenders. The district court must determine which of these

views is legally correct and then ascertain which provisions

of the state regulations are incompatible with the federal

regulations now in force. It would be premature for us to

address these subjects, on which we have not had the benefit of adversarial presentation. Accordingly, the judgment

of the district court is vacated, and the case is remanded

with instructions to dismiss the Office of Banks and Real

Estate as a party and to issue a declaratory judgment resolving which state regulations are preempted by the

combination of §3803(c) and the OTS regulations governing

federal lenders.

A true Copy:

Teste: 

 ________________________________

Clerk of the United States Court of

Appeals for the Seventh Circuit 

USCA-02-C-0072—10-21-02