May 21, 2001 was a good day for the California Mortgage Bankers Association. On that day, Assembly Bill 1090, which represented the Association's open effort to over-turn an adverse court decision rendered against Glendale Federal Bank (since acquired by Cal Fed), breezed through the California State Assembly by unanimous vote.

The California legislation deals with financial institutions' obligations to reconvey mortgage deeds to homeowners after they have fully repaid their mortgages. The bill, written by Robert M. Hertzberg, the powerful Speaker of the California Assembly, has since gone up to the California Senate for approval, but no one will predict whether it will pass.

Banking lobbyists for Monogram Credit Card Bank of Georgia, one of GE Capital's consumer finance units, did not fare as well last year. At the time, they asked the Louisiana legislature to enact legislation that also would have overturned an adverse court decision concerning late charges that credit card companies may impose on consumers. Why the different outcomes?

Gail Hillebrand, senior attorney at the West Coast Regional Office of Consumers Union, said the California mortgage bill's sponsors, "to their credit, made it clear" to the legislature that the bill was designed to overturn the unfavorable court decision. In fact, the text of the proposed statute itself candidly states that "[t]his act is intended to specifically abrogate" the court decision. On the Sly

By contrast, GE Capital's lobbyists didn't play it straight with the Louisiana legislature when they tried to pass their bill. As reported in the September 2000 issue of U.S. Banker, Louisiana State Senator Francis C. Heitmeyer agreed to spearhead GE Capital's bill because he was led to believe it was pro-consumer. Circumventing the standard procedure of introducing a bill before the Louisiana House and then the appropriate Senate committee, the bill's sponsors persuaded Heitmeyer to introduce the bill on the Senate floor at the eleventh hour, as an amendment to an unrelated motor vehicle and consumer credit bill.

GE Capital's lobbyists put on the record that their Louisiana bill did "not change present substantive law," and that it had only a "clarifying and interpretative" purpose. But they didn't mention the adverse court decision the bill sought to nullify. "We felt that it was intentionally hidden in the bill," said Trey Hodgkins, manager of governmental affairs for the Louisiana Sheriffs' Association, whose constituency was incidentally affected by GE Capital's bill.

When Senator Heitmeyer discovered after the fact that GE Capital had designed the bill to thwart litigation against it, he wasn't pleased. Heitmeyer himself acknowledged to U.S. Banker that when he found out what GE Capital's lobbyists were really up to, he sent word to Louisiana Governor M.J. "Mike" Foster Jr. that he would be happy if the Governor vetoed his own bill. Lee Plotkin, the lawyer squaring off against GE Capital in the Louisiana case, said: "I don't believe that was known to the legislature. The legislature mistakenly thought they were doing consumers good." Candor with the legislature was a distinguishing factor between the California and Louisiana legislative efforts.

Aside from being straightforward with the legislature, the California lobbyists also sought support from consumer groups. Although Consumers Union initially opposed a preliminary version of the bill because it watered down financial institutions' obligations to reconvey deeds of trust without strengthening any consumers' rights, Consumers Union ultimately decided to throw its support, with some reservations, to the current version of the bill.

Consumers Union's Hillebrand says that although the current version of the bill gives mortgage companies more time to reconvey deeds of trust, it "is a step forward" because it beefs up the penalties financial institutions must pay if they fail to comply with the more lenient but specific deadlines. That "type of compromise happens all the time in California," says J. Clark Kelso, director of the Capital Center for Government Law and Policy in Sacramento.

By contrast, GE Capital's bill angered not only consumer advocates but even law enforcement groups such as the Louisiana Sheriffs' Association. GE Capital's legislation was worded so broadly that, beyond its application to credit card late fees, it would have permitted out-of-state creditors to use their own state's possibly harsher repossession laws to go after Louisiana consumers. And it would have allowed out-of-state deputies to repossess cars in Louisiana, a function that belongs to the state's sheriffs.

In its efforts to usher in legislation at the eleventh hour, GE Capital "never made an effort to reach a common understanding," much less ever "contacted us" about the incidental effects of their legislation, says the Sheriffs' Association's Hodgkins. This practice is at odds with the approach of many Louisiana legislators, says Hodgkins. As in California, Louisiana legislators often tell sponsors to sit down and try to work things out with other affected parties, Hodgkins says.

Had GE Capital's Louisiana bill sponsors contacted the Sheriffs' Association about their concerns, things may have turned out to be different. Hodgkins said that very recently, "the used car dealers came to us" and asked the Association to give its blessing to laws that would strengthen their rights and allow for more rapid repossession of automobiles. The Association agreed to a more pro-business repossession bill that ultimately became law.

Of course, with the benefit of hindsight, it is easier to criticize GE Capital and to praise the California Mortgage Bankers Association on the narrow issue of the efficacy of their strategies. Had an attorney in the Louisiana Attorney General's office who was knowledgeable in consumer credit law not caught on to GE Capital's efforts as the bill sat on Governor Foster's desk ready for signature, GE Capital's legislation may have become law.

Many lobbyists in California also are aware that legislators can be acutely aware of the lobbyists' ulterior motivations, and thus have no choice but to be more forthcoming. John Burton, now the president pro tempore of the California Senate and chairman of the Senate Rules Committee, has been known to bluntly ask a bill's sponsors at the outset whether the bill is intended to impact ongoing litigation.

"We've been watching" for this type of legislation from the mortgage and realtor associations, says Consumers Union's Hillebrand. Therefore, lobbyists in California have a good chance of getting caught if they use the strategy GE Capital tried unsuccessfully in Louisiana.

Undoing Court Decisions

Courts have set clear limits on the ability of lawmakers to undo judicial decisions in cases where a citizen’s or company’s constitutional rights are at stake.“It’s kosher to go to the legislature” and ask for legislation that may affect an ongoing court battle, says Erwin Chemerinsky, a well-known constitutional scholar and professor of law at the University of Southern California.But there are legal and practical limits to how far a legislature can go. New laws cannot undo court judgments in which there are no further possibilities of appeal, according to the U.S. Supreme Court in its 1995 decision in Plaut v. Spendthrift Farms Inc. The High Court reasoned that any effort to tamper with a court’s final judgment would violate the basic principle of separation of powers between the judicial and legislative branches of government.

Another important limitation is that a new law cannot impair a “vested right” — such as rights under an existing contract or business license. Courts generally will not allow new legislation to be applied retroactively unless there is a compelling public interest for doing so, explains J. Clark Kelso, director of the Capital Center for Government Law and Policy in Sacramento.

Of course, in the California mortgage banking case, the parties are at odds over whether the proposed legislation would change California law or merely clarify it. If it simply clarified the law, as the mortgage industry sponsors claim, it could be applied retroactively — that is, the mortgage companies would not have to pay penalties for reconveying deeds of trust late.

If the new legislation was deemed to have changed the law, the courts would be reluctant to apply it retroactively unless there was a compelling public interest to do so. And that possibility is slight. The bill’s opponents say that the legislation flatly overrules existing law — namely, the recent court decision the legislation unabashedly seeks to overturn — and argue it should not be applied retroactively.

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