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Mobile Register

Reversal from earlier ruling redefines which companies are subject to state's 'Mini-Code' laws

The Alabama Supreme Court reversed itself Friday in a mortgage financing dispute and redefined which companies are subject to the state's consumer credit laws.

The new ruling went in favor of Michael McGehee, a disabled Mobile epileptic with four children.
Although the lawsuit involved a Louisiana company, Alabama bankers had awaited the outcome of the case because the licensing issue could affect them. In the last two sessions of the Legislature, business groups pushed a bill to wipe out suits such as McGehee's, but it failed both times.

"This is going to rectify widespread abuse of a whole group of consumers by this company in Alabama," Skip Finkbohner, a Mobile attorney representing McGehee, said Saturday.

He said a class-action suit against the same company - the Louisiana-based United Companies Lending Corp. - is pending in Mobile County Circuit Court and will be affected by the ruling.

"They did the same thing to hundreds of people and the vast majority are in the class-action suit," Finkbohner said.

"I'm not aware of any other consumer mortgage lender that's going to be affected by this decision," he added.

Finkbohner said the decision wouldn't have the negative effect on lending institutions many bankers thought it might.

"It will have a huge impact on United Companies Lending Corporation," he said. "Beyond that, it shouldn't have an impact on any other lenders unless they're engaged in this type of attempt to create exemption."

He said it was rare to find other banks or lending institutions that try to claim the exemption if they aren't entitled to it.

McGehee was charged a fee of 8 discount points, or $2,972, when United Companies gave him a $34,800 home mortgage at 14 percent interest.

He sued, claiming the company must abide by the state's consumer laws, known as the "Mini-Code." Those laws set a cap of 5 discount points on home mortgage loans.

A trial court ruled in McGehee's favor, but the Supreme Court in May reversed that in a unanimous opinion. The high court said then that United "is entitled to an exemption" to the Mini-Code cap as an approved lender under the provisions of the National Housing Act.

McGehee asked the Supreme Court to reconsider. And on Friday he got what he wanted, with the court reversing itself in a 5-3 decision that said United did not qualify for an exemption.
The ruling was unusual because the Supreme Court rarely reconsiders and reverses a unanimous decision.

"The issue, as narrowed on rehearing, is whether a mortgagee that is not approved to make National Housing Act loans in Alabama comes within," the Mini-Code exemption, the Supreme Court said.

McGehee had argued in his lawsuit that United misrepresented itself to him as a lender approved under the federal act, which has its own set of regulations meant to protect consumers.

The company's Louisiana offices were licensed by the federal Department of Housing and Urban Development to make HUD-backed loans under the act, but its offices in Alabama were not, according to court documents.

The high court's majority ruled, therefore, that United's Alabama offices were not approved under the National Housing Act and should not get an exemption from the cap.

They said the Mini-Code, meant to protect consumers, should be construed most favorably for the public and any exemptions should be most strictly construed against the party seeking the exemption.

The court's majority affirmed the trial court's ruling in favor of McGehee.

Chief Justice Perry Hooper and Justices Hugh Maddox and Gorman Houston dissented, saying the case's record showed United had qualified under federal requirements to be a part of the National Housing Act, even if it wasn't giving federally insured loans in Alabama. Hooper was elected to the court last year with the backing of business interests.

The majority decision was approved by Justices Reneau Almon, Janie Shores, Mark Kennedy, Ralph Cook and Terry Butts. Justice Kenneth Ingram, who is up for re-election, did not participate.