On August 13, 2020, the Oregon Bankers Association (“OBA”) and three Oregon-chartered banks filed a Complaint for declaratory and injunctive relief against the State of Oregon, Oregon’s Attorney General, and the Director of the Oregon Department of Consumer and Business Services. The Complaint alleges that House Bill 4204 (“HB 4204” or “the Bill”) is unconstitutional and requests the defendants be enjoined from the Bill’s provisions.

Lenders of both commercial and residential loans secured by real estate in Oregon are affected by the Bill, which creates restrictions against lending activity, imposes affirmative obligations upon lenders, and creates a private cause of action for borrowers. HB 4204 also potentially creates retroactive liability for lenders based on activity undertaken between March 8, 2020, and June 30, 2020 (when the bill was passed) by rendering illegal conduct what was legal at the time. Set forth below is an overview of the Bill’s provisions and the suit challenging the same.

Oregon Enacts HB 4204 on June 30, 2020

Oregon’s Governor signed HB 4204 into law on June 30, 2020. The Bill creates an emergency period running from March 8, 2020, to September 30, 2020 – or starting a little more than three and a half months prior to when HB 4204 was signed into law. The Bill also allows Oregon’s Governor to extend the emergency period via executive order.

The Bill allegedly expands deferrals of being able to collect payments, prohibits lenders from exercising their full contractual rights, does not require a commercial or multi-family borrower to demonstrate an inability to pay flowing from the COVID-19 pandemic to be afforded statutory protections, potentially voids sales completed prior to HB 4204’s passage, requires lenders to provide written notice by mail to borrowers of their accommodation rights, and provides a private cause of action for borrowers against lenders for any violation of HB 4204’s restrictions.

The Lawsuit’s Allegations

The Complaint cites the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act’s obligations with respect to modifying or entering into forbearances for existing loans. An in-depth look at the CARES Act’s provisions can be found here. Plaintiffs’ Complaint states that federal regulation of banking is so pervasive that the normal presumption that “Congress does not intend to preempt state law absent a clear manifestation of intent to the contrary… does not apply to regulations in the field of national banking.” Campidoglio LLC v. Wells Fargo & Co., 870 F.3d 963, 971 (9th Cir. 2017). As a result, Plaintiffs argue that the Bill has been preempted, because Congress has spoken in the area of federal housing relief related to COVID-19 by enacting the CARES ACT in the federally backed mortgages space.

Additionally, Plaintiffs allege HB 4204 is unconstitutional because it violates the Contracts Clause by impermissibly impairing the Plaintiffs’ contract rights without being reasonably tailored to address conditions arising from the COVID-19 pandemic. Plaintiffs further allege that retroactive application of the Bill violates the Due Process and the Takings Clauses by taking vested property rights by arbitrarily imposing substantial retroactive liability for banks operating in Oregon based on previously legal conduct.

Takeaways

This suit spotlights frustrations felt by businesses attempting to wade through conflicting governmental directives and implement compliant operations. Lenders have until August 29, 2020, to provide written notice by mail to its borrowers of any accommodation rights. Lenders should also ensure appropriate compliance programs are in place for any deferral requests, differentiating between residential properties with four or fewer units, and commercial properties or residential properties with four or more units.

Lenders additionally ought to review transactions that were finalized between the start of the emergency period, March 8, 2020, and the passage of HB 4204 on June 30, 2020, to evaluate potential retroactive liability created by the Bill. No temporary restraining order has been filed, so a window exists for borrowers to bring claims even if the Bill doesn’t ultimately survive judicial review.

Troutman Pepper will continue to follow the case and further litigation of COVID-19 emergency orders and directives issued by state and local governments that impact business operations.