CONTENTS:

States the intent of the General Assembly on the relationship of state and local laws regarding the regulation of loans and other forms of credit, conforms Ohio law with the Federal HOEPA Law, makes appropriations, and forms a Predatory Lending Study Committee

State Fiscal Highlights

STATE FUND	FY 2002	FY 2003			Future Years
Financial Institutions Fund 4X2 (800-619)
Revenues	Potential minimal gain (offsetting investigation costs)		Potential minimal gain (offsetting investigation costs)	Potential minimal gain (offsetting investigation costs)
Expenditures	Potential $125-$250 increase, plus potential minimal increase for investigation costs		Potential $375-$750 increase; plus potential minimal increase for investigation costs	Potential minimal increase for investigation costs
Consumer Finance (Fund 553)
Revenues	Potential gain from fines		Potential gain from fines	Potential gain from fines
Expenditures	$525,000 increase; potential increase to reimburse Attorney General		$650,000 increase; potential increase to reimburse Attorney General	Potential $650,000 increase; potential increase to reimburse Attorney General
General Reimbursement (Fund 106) – (Attorney General)
Revenues	Potential gain from reimbursement from Division of Financial Institutions		Potential gain from reimbursement from Division of Financial Institutions	Potential gain from reimbursement from Division of Financial Institutions
Expenditures	Potential increase		Potential increase	Potential increase
GRF
Revenues	Potential minimal gain		Potential minimal gain	Potential minimal gain
Expenditures	Potential minimal increase		Potential minimal increase	Potential minimal increase
Crime Victims Fund (Fund 402)
Revenues	Potential minimal increase		Potential minimal increase	Potential minimal increase
Expenditures	-0-		-0-	-0-

Note: The state fiscal year is July 1 through June 30. For example, FY 2002 is July 1, 2001 – June 30, 2002.

· The Department of Commerce expects to use existing staff and facilities for the Predatory Lending Study Committee, and estimates that they will spend a total of $500 to $1,000, from the Financial Institutions Fund, for supplies over the duration of the study. The committee shall cease to exist not later than June 30, 2003.

· This bill requires the Division of Financial Institutions to include enforcement information in the annual report and may result in a potential minimal increase in administrative costs, from the Financial Institutions Fund.

· In addition, there may be an increase in expenditures in the Financial Institutions Fund if the Superintendent investigates persons who allegedly fail to comply with state laws regarding loans. These costs incurred by the Division may be recovered from the person.

· This bill may result in a potential gain in revenues in the Consumer Finance Fund from fines collected from persons who fail to comply with the Ohio HOEPA laws.

· This bill earmarks $125,000 in FY 02 and $250,000 in FY 03 in the Consumer Finance Fund in order to pay for 4 new positions the Division of Financial Institutions intends to create. If these positions are continued, there will be a potential increase of $250,000 in each future year. This bill also earmarks $400,000 in FY 02 and $400,000 in FY 03 in the Consumer Finance Fund in order to pay for the operation of the Office of Consumer Affairs. This bill increases the appropriation in the Consumer Finance Fund by $525,000 in FY 02 and $650,000 in FY 03 in order to cover these earmarks.

· The Superintendent of Financial Institutions may initiate criminal proceedings by presenting evidence to the Attorney General if the prosecuting attorney of the county does not prosecute. If the Attorney General prosecutes the violator, there may be an increase in expenditures in the General Reimbursement Fund 106 - Attorney General. As a result, the Consumer Finance Fund in the Division of Financial Institutions would experience an increase in expenditures in order to reimburse the Attorney General for attorney fees and court costs. In addition, a potential $41 in locally collected state court costs may be collected for each case. The $41 is distributed as follows: $11 to the GRF and $30 to the Crime Victims Fund (Fund 402).

· If persons are found guilty of a felony of the fifth degree, there will be a potential increase in expenditures in the GRF – Department of Rehabilitation and Correction if individuals are incarcerated. However, LSC fiscal staff believes this is unlikely because few prison sentences are made for this type of crime.

Local Fiscal Highlights

LOCAL GOVERNMENT		FY 2002		FY 2003		FUTURE YEARS
Municipalities
Revenues	Potential minimal loss		Potential minimal loss		Potential minimal loss
Expenditures	Potential minimal decrease		Potential minimal decrease		Potential minimal decrease
Counties
Revenues	Potential gain from court fees and fines		Potential gain from court fees and fines		Potential gain from court fees and fines
Expenditures	Potential increase in court costs		Potential increase in court costs		Potential increase in court costs

Note: For most local governments, the fiscal year is the calendar year. The school district fiscal year is July 1 through June 30.

· If a municipality enacts an ordinance regulating loans, then they may generate revenue by imposing a fee or fines associated with the regulation. As a result, a municipality may increase their expenditures by regulating loans through administrative costs or court costs associated with prosecuting violators. This bill prohibits municipalities from enacting such ordinances or resolutions and results in a potential minimal revenue loss and/or potential minimal expenditure decrease for municipalities.

· The City of Dayton adopted a Predatory Lending Ordinance in July 2001, which includes a penalty. However, the ordinance is not yet effective because of a pending law suit filed against them by the American Financial Services Association.

· The Division of Financial Institutions may make application to the court of common pleas of any county for an order enjoining any activity constituting a failure to comply. This may result in an increase in county court costs and court fees. Court fees may be paid by the Division of Financial Institutions and recovered by persons who failed to comply.

· The Superintendent of the Division of Financial Institutions may also initiate criminal proceedings by presenting evident to the prosecuting attorney of the county, who may then prosecute. This may increase county expenditures to pay for court costs and administrative costs. If the prosecuting attorney chooses not to prosecute, the Attorney General may prosecute, resulting in an increase in county revenues from court fees and an increase in expenditures for court costs.

· Persons who are found guilty of violating sections 1349.26 or 1349.27 of the ORC are guilty of a felony of the 5th degree. This may result in an increase in county revenues by the fines collected.

Detailed Fiscal Analysis

The State of Ohio currently regulates activities related to the lending and credit business in the state. The Department of Commerce, Division of Financial Institutions, regulates many financial institutions. Of these financial institutions, a large number of them participate in lending and credit activities. This bill prohibits any political subdivision of the state from enacting any ordinance, resolution or regulation intended to regulate any lending or credit activities. This bill clearly identifies the State of Ohio as the regulator of all loans and other forms of credit in the state in order to maintain uniformity in the regulation of lending and credit activities throughout the state.

Duties of the Division of Financial Institutions

This bill conforms Ohio law to the federal Home Ownership and Equity Protection Act of 1994 with respect to specified consumer loans. According to federal estimates, these regulations cover 38% of all sub-prime first mortgages and approximately 61% of all second mortgages. By codifying HOEPA into state law, these laws can be enforced by the state and not exclusively by the federal government. This bill allows the Department of Commerce to enforce and investigate to implement these new regulations. Specifically, the Superintendent of the Division of Financial Institutions may subpoena any records pertaining to a potential violation against a consumer, may issue a cease and desist order for individuals in engaging in illegal activities, and may suspend, revoke, or deny the renewal of the broker license. As a result, there may be an increase in expenditures in the Financial Institutions Fund if the Superintendent investigates persons who allegedly fail to comply with state laws regarding loans. These costs incurred by the Division may be recovered from the person. The Division of Financial Institutions may also make application to the court of common pleas of any county for an order enjoining any activity constituting a failure to comply. This may result in an increase in county costs and court fees. These court fees may be paid by the Division of Financial Institutions and recovered by persons who failed to comply.

In order to fulfill this enforcement, $125,000 in FY 2002 and $250,000 in FY 2003 has been earmarked and appropriated in Fund 553, the Consumer Finance line item in the Department of Commerce. The Department of Commerce plans to hire three Attorney 4 positions at $63,300 each and one Administrative Assistant 3 position at $52,214. This bill also earmarks and appropriates $400,000 in FY 02 and $400,000 in FY 03 in the Consumer Finance Fund in order to pay for the operation of the Office of Consumer Affairs created in this bill. If any of the $400,000 in FY 02 is not used, the remaining balance may be appropriated for FY 03 to be used for the same purpose.

Office of Consumer Affairs

This bill creates the Office of Consumer Affairs in the Division of Financial Institutions. The responsibilities of this office include: providing education to residents of this state regarding borrowing and related financial topics; providing referrals to credit counseling services; receiving complaints; contacting the persons that are subject of the complaints; and referring matters to the Superintendent of Financial Institutions. In addition, the Study Committee is required to review the operations of the Office of Consumer Affairs. This bill appropriates $400,000 in FY 02 and $400,000 in FY 03 in order to create this office. According to the Department of Commerce, they plan to work within the appropriated amount to create this office, which will include hiring staff.

Penalty

The Superintendent may impose a fine on persons who fail to comply. The fine for a person found guilty of noncompliance may be fined $2,500 per compliance failure, $5,000 if the person files to comply two or more times, and the Superintendent may double the fines if the victim of the violation is 65 years or older. The revenues generated from these fines are to be deposited in the Consumer Finance Fund.

This bill also requires the Division of Financial Institutions to include enforcement information in the annual report and may result in a potential minimal increase in administrative costs, from the Financial Institutions Fund.

The Superintendent of the Division of Financial Institutions may also initiate criminal proceedings by presenting evident to the prosecuting attorney of the county, who may then prosecute. This may increase county expenditures to pay for court costs and administrative costs. If the county prosecuting attorney chooses not to prosecute, the Attorney General may prosecute, resulting in an increase in county revenues from court fees and an increase in county expenditures for court costs.

Persons who are found guilty of violating sections 1349.26 or 1349.27 of the ORC are guilty of a felony of the 5th degree. If persons are found guilty of a felony of the fifth degree, there will be a potential increase in expenditures in the GRF – Department of Rehabilitation and Corrections if individuals are incarcerated. However, LSC fiscal staff believes this is unlikely. This may result in an increase in county revenues by the fines collected. In addition, a potential $41 in locally collected state court costs may be collected for each case. The $41 is distributed as follows: $11 to the GRF and $30 to the Crime Victims Fund (Fund 402).

Prohibits a Municipal Ordinance

If a municipality enacts an ordinance regulating loans, then they may generate revenue by imposing a fee or fines associated with the regulation. In addition, a municipality’s expenditures may increase as the result of an ordinance regulating loans due to an increase in administrative costs or court costs associated with prosecuting violators. For example, the City of Dayton adopted a Predatory Lending Ordinance in July 2001, which includes penalties and fines. However, the ordinance is not yet effective because of a pending law suit filed against them by the American Financial Services Association. HB 386 prohibits municipalities, such as the City of Dayton, from enacting ordinances or resolutions regulating loans or credit activities and may result in a potential minimal revenue loss and/or potential minimal expenditure decrease for municipalities.

Predatory Lending Study Committee

This bill also creates a 15-member Predatory Lending Study Committee to exist until June 30, 2003. The Department of Commerce expects to use existing staff and facilities for the Predatory Lending Study Committee, and estimates that they will spend a total of $500 to $1,000 for supplies over the duration of the study.

LSC fiscal staff: Jeremie Newman, Budget Analyst

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BILL:	Sub. H.B. 386		DATE:	February 5, 2002
STATUS:	As Reported by Senate Finance and Financial Institutions		SPONSOR:	Rep. Blasdel
LOCAL IMPACT STATEMENT REQUIRED:		No —	Minimal cost