# Petition for Writ of Certiorari — Glukowsky v. Equity One, Inc. > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386003_1349%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition for Writ of Certiorari - **Published:** January 1, 2005 - **Citation:** 543 U.S. 1049 ## Text No. 047398 SEP 1 * 2004 ae —~ OFFICE O° 3n The Supreme Court of the Anited States vy MARK GLUKOWSKY, Petitioner, v. EQUITY ONE, INC., a Delaware corporation, Respondent. ee - VICTOR and ELAINE YURITCH, Petitioners, v. COUNTRYWIDE HOME LOANS, INC., d/b/a America’s Wholesale Lender, a foreign corporation, Respondent. eo ad On Petition For A Writ Of Certiorari To The Supreme Court Of New Jersey ¢ PETITION FOR A WRIT OF CERTIORARI eo _ LEWIS G. ADLER Counsel of Record ROGER C. MATTSON 26 Newton Avenue Woodbury, NJ 08096 (856) 845-1968 Fax: (856) 848-9504 COCKLE LAW BRIEF PRINTING CO. (800) 225-6964 OR CALL COLLECT (402) 342-2831 QUESTIONS PRESENTED Whether Congress vested regulatory power in the states concerning prepayment penalties and other interest charges in “federally related mortgages” un- der their opt-out provisions of Depository Institu- tions Deregulation and Monetary Control Act of 1980 (DIDMCA) 12 U.S.C. §1735(f)-7(a)? Whether the Office of Thrift Supervision (OTS) regulations adopted in 1996 under the Alternative Mortgage Transaction Parity Act, 12 U.S.C. §§3801 et seq. (AMPTA or Parity Act) were ultra vires? ii TABLE OF CONTENTS Cocceuntionnn FUGUE ccckicccireiRiscecstcrsmentsincnaassinbanc ane FORD OE CR iveiiiteinisccle caked tek Opies TRO osaseccssncrsaccutrcleaectanasmmenaagiaanaicameice Bg TE TRE ARNIS Lene AL OT NE Rt ACE Se Ee Statutory Provision Involved ................ccccssssseseessseeeeeees Shatocmat Oh PO scsvesitesad ae ieetataa teense Mark Glukowsky v. Equity One.............ccccccceeeeeeeeeeeee VYosrdtche ©. Cm asceckcastitictteitashnticcastignees ProcuGurel REAGOEG ocecccsciciiosiciciniaseaean asec Mark Glukowsky v. Equity Ome........cccccccccceceecececeeeees Yuartich, v. ComGi gi i sacicctiiseldainiccentsasuntancicese Reasons for Granting the Petition .................ccccccccceceees ‘ II. This court should resolve the conflict between Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA) 12 U.S.C. §1735(f)-7(a) and the Alternative Mort- gage Transaction Parity Act (AMPTA or Parity Act) as to whether State laws adopted pursu- ant to the limited opt-out of DIDMCA are pre- empted by AMPTA and its regulations ............. This court should confirm that the 1996 OTS regulations were ultra vires as the OTS has MIE sis is -cscisscrnncesaiamaliiia an idmaaeennatains Chevron Deference Is Inappropriate......................66 COMPO oie cesisniciscsecdsacegete a eee ili aOoonwn wons NYO No -& - ili TABLE OF AUTHORITIES Page CASES Brown & Williamson Tobacco Corp. v. FDA, 153 F.3d 155 (4th Cir. 1998), cert. granted, 119 S.Ct. PN a ss0hethmnastonensuacilsineisicsumaassiiarsoni. a... 16, 17, 22 California Division of Labor Standards Enforce- ment v. Dillingham Construction, N.A., Inc., 519 lic 17 Casino Ventures v. Stewart, 183 F.3d 307 (1999), cert. denied, 528 U.S. 1077 (2000)............ iaaanidadanbaacaiibars: 18 Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 i | RRC 14, 16, 17 Cipollone v. Liggett Group Inc., 505 U.S. 504 ( 1902)........ 18 Commonwealth of Virginia Department of Educa- tion v. Riley, 106 F.3d 559 (4th Cir 1997) en banc........ 16 Currie v. Diamond Mortgage Corp. of Ill., 859 F.2d oth wy eter gpa ee TRO 23 Fidelity Federal Savings and Loan Ass’n v. De La Cuesta, 458 U.S. 141 ON i iisirniacal to ne 17, 18 First Gibraltar Bank, FSB v. Morales, 19 F.3d 1032 (Sth Cir. 1994)........ sacainsutast ance ENCED 9 Glukowsky v. Equity One, Inc., 180 N.J. 49 (2004)......... 1, 5 Glukowsky v. Equity One, Inc., 360 N.J. Super 1 “cts pan oe eo TE 25 Gregory v. Ashcroft, 501 U.S. 452 5). | SERRE VOOR aa 21 Int'l Assoc. of Indep. Tanker Owners v. Locke, 148 F3d 1053 (9th Cir. 1998), cert. granted, 68 ee NE es ciascanteicstcse caresses mck, 17 lv TABLE OF AUTHORITIES — Continued Lowe v. Sporicidin International, 47 F.3d 124 (4th Sas OE withiccinissnshicicaatncemnbilacaseceshelineseuhicuhaeaspucidatietipsdsiailenbaanen 18 New York Conference of Blue Cross & Blue Shield Plans v. Travelers Insurance Co., 514 U.S. 645 CRIED iathsicab libponisindscasseh papiceiiiieniupbaiissaindibaaabasandglsiitaedahansaiiutaiaiilaiies 17 Pennhurst v. State School & Hospital v. Halder- I, Se ie Be Eh aiisiate viens niccsnseieistdenincninslanaveadaes 22 Smiley v. Citibank (South Dakota), N.A., 517 U.S. SN insects cs cinsdidtnlesikec adsehancecies tc csipsanaanccaglia tones 17,19 Smith v. Fidelity Consumer Discount Co., 898 F.2d ee CN Ge icici inten hchacnea ca titciniaciaeaditaienctaen 11 U.S. v. Langley, 62 F.3d 602 (4th Cir. 1995) en banc, cert. denied, 116 S.Ct. 797 (1996)................esseeeeeeees 11, 20 U.S. v. Wilkes, 120 F.3d 468 (4th Cir. 1997), cert. denied sub nom. Cameron v. U.S., 115 S.Ct. 885 PIII sciisvicaiddetssmidsinnasincaciasas va sasicaiaaibenn-asaauadgendbilcsaseaiaiaaanaaiaanin 14 Yuritch v. Countrywide, __ N.J. __ (2004), 854 A.2d 0 EU scien esisitechendciacainleecaticeabiascainiaeciamansdiasiadaiandaMaaameebiuhe 1 STATUTES ies SPI talscitissasomninicesnniandencicadigl sib tecs tae dtetokates 3 as I intend cicsecincedacad ecidiadabidtctea eee aeblien 8 ae as, cI IEE sctahcacsh ca sigianadianineiicemcsdgtaea maetasbaehelatons 8 Pee le. MEE I cohasaace nia nvateutasiineaiaassadalepcidladanemmanmnia 3 Fee I cts snbishibiaconstvnacinee tissameuaaienaabniaaaemie 3 I es is is hdd sacbsicesapemendegunianimasiobhedetoubbadin 18 Vv TABLE OF AUTHORITIES - Continued Page Fn AEs Ee PR sarees cistron enue a ue ae 15, 16 RB EGC. GE TRON) isiseccsvssansansesessoseesssincocecectes 23 Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA) 12 USC. Be FN i iitkcitcniedian nae ee 1, 6, 22, 25 12 U.S.C. §1735f-Ta(ay(L) ......ccccscsscescsessesesssssssseseeceseseesece.n, 8 Se SIIDAS. GEFIE TAD snvsccrscascsosidonstoniainanaicumnesiidecoa 7 12 U.S.C. §1735f-7a(bN(4)...........c.cscecececesesssososososoeeeeeses.., 5, 8 GONE incirndinssksnnernmeccniontaine aa ae cee 10 12 U.S.C. §1757(5)(A)(Viii) ooo ccececesececececesesecesecess. 20, 23 Alternative Mortgage Transaction Parity Act 12 WEIN. FOP OR WIND siccitrrnictsmaecharnarnicisnnd ee 6 Be EA GO sisicscrdccchssaiicii eds entice 14 Be EIA, QO ccininctiscieunacaiuiduatg ok ae 20 Be SERA. GOD ss isyciciincscssiasnininicteacglacea ee 16 Se Se ID vccinscinndccdcnalilc lane ee 14, 17, 19 Se FAs SR ciissicnicinncbgcaiaingas eo en 12, 20 SS EG, GO anniv cdusccacedaan ae 10 BO EI IDAL, GUID isicirseninsecds easiest ee 1 REGULATIONS ES CBR. FODO IAD secisciccncscsviiinccciaaticuse et 13, 15 EB CF i iicchinnsciicuiiadsin 3, 8, 24 BB Pe GO i visisccscicieciia ee 3, 4, 8, 24 TABLE OF AUTHORITIES — Continued Page ES CEs GR tschcscechintninnaaantiadnaaesenn 22 PRS, BIA veisenissteiobanliamaaamaveal 8,9 OTHER AUTHORITY GE TOR. THAD, Be siiicsriicirensicsinceatiummenasibaaae 15 GO FO. FAG. Be tistitiinisncinsiccecisccanapeinnacaetan 20 67 Fed. Reg. 20470 (April 25, 2002)................ececeeeeeeeees 9,13 67 Fed. Reg. 60545 (September 26, 2002)..................... 9,13 Senate Report 97-463, Housing and Community Development Amendments of 1982 (Filed May 12, RS Bi: GD nicestinansiccnssssssnistacinieaanndaamaaes 16, 23 1 OPINION BELOW The New Jersey Supreme court opinion is reported as Glukowsky v. Equity One, Inc., 180 N.J. 49 (2004). (Appen- dix at 1). The decision of the New J ersey Appellate Division is reported as 360 N.J. Super 1 (App. Div. 2003). (Appendix at 29). The related case of Yuritch v. Countrywide was decided by the New Jersey Supreme Court on the same basis in its decision reported as__ NJ. ___. (2004), 854 A.2d 917 (2004) (Appendix at 28) without further decision. 4 JURISDICTION The New Jersey Supreme Court entered its initial decision on May 26, 2004 (Appendix at 1) and entered an order denying reconsideration on June 15, 2004 (Appendix at 82). The related case of Yuritch v. Countrywide was decided by the New Jersey Supreme Court on the same basis in its decision reported as July 8, 2004. (Appendix at 28) This court has jurisdiction under 28 U.S.C. §1257(a) to review the NJ. Supreme Court’s decision on a writ of certiorari. 4 wv STATUTORY PROVISION INVOLVED 12 U.S.C. §1735(f)-7(a) (4) At any time after March 31, 1980, any State may adopt a provision of law placing limita- tions on discount points or such other charges on any loan, mortgage, credit sale, or advance described in subsection (a)(1) of this section. 4 2 STATEMENT OF FACTS Mark Glukowsky v. Equity One The petitioner, Mark Glukowsky, purchased a home on October 29, 1999. He obtained a loan from Equity One in order to finance the purchase. The loan included a prepayment rider, that if the mortgage loan was paid in full within the first three years of the loan the borrower would have to pay an additional charge of 3% of the amount prepaid if paid in the first year, 2% of the amount prepaid in the second year and 1% of the amount prepaid if paid in the third year. On April 19, 2001, Mr. Glukowsky sold the property and paid off, in full, the loan with Equity One. The pay off included a prepayment penalty of $1,427.97. Equity One, Inc. is a Delaware Corporation and a non- depository lender. The courts below have characterized the loan from Equity One to Mr. Glukowsky as a balloon mortgage subject to regulations under AMPTA and OTS regulations adopted thereunder. Under New Jersey law, a lender such as Equity One is prohibited from charging a prepayment penalty on any loan secured by a residential property. Yuritch v. Countrywide Victor and Elaine Yuritch entered into a residential mortgage transaction with Countrywide Home Loans, Inc, a California Corporation, on February 2, 1999. The loan contained a variable interest rate. Victor and Elaine Yuritch sold the property and paid off the loan on Novem- ber 11, 2002. Countrywide in its pay-off statement in- cluded a requirement for the payment of $6,015.10 as a PT Le I L_£L2 3 Prepayment penalty calculated as six months advance interest on the amount which prepayment is in excess of twenty percent of the principle balance. The pre-payment penalty as demanded was paid at settlement on N. ovember 30, 2002 by the plaintiffs. + PROCEDURAL HISTORY Mark Glukowsky v. Equity One On May 17, 2001, Mr. Glukowsky filed a putative class action complaint which alleged that Equity One violated New Jersey law by charging and collecting a prepayment penalty. Count One alleged that Equity One violated N.J.S.A. 46:10B-2 by charging and collecting a prepayment penalty upon the satisfaction of the mortgage. Count Two alleged the same as regards to N.J.S.A. 17:3B- 22. Count Three alleged that Equity One’s actions amounted to consumer fraud in violation of N.J.S.A. 56:8- 2, New Jersey Consumer Fraud Act. In lieu of filing an answer, Equity One filed a motion to dismiss for failure to state a claim upon which relief may be granted. Mr. Glukowsky filed a cross motion for summary judgment on the legal issues raised. The trial court granted Equity One’s motion holding that 12 C.FR. §560.220 barred enforcement of N.J.’s Prepayment Penalty Law. under the Parity Act when it applied 12 C.F.R. §560.34 to state lending institutions engaged in’ AMTS. The panel concluded that Congress did not intend the Parity Act to 4 pre-empt State Consumer Protection laws that prohibited the imposition of prepayment fees on real estate transac- tions in general, and on alternative mortgage transactions (AMTS) in particular. The panel reinstated the claims that alleged violations of the New Jersey Prepayment Law and Consumer fraud Act. In a 4-3 decision the New Jersey Supreme Court majority reversed the Appellate Court decision holding that the New Jersey Prepayment Law was pre-empted by the 1996 version of 12 C.F.R. §560.220. In a strongly worded dissent, citing the Appellate Court’s decision, the court noted: “I write further only to underscore the point that affording lenders protection under the 1996 regu- lation, which by now has been universally recog- nized as misguided, becomes especially unjust when viewed in conjunction with the sequence of events relating to the “opt-out” mechanism pro- vided by Congress when it enacted the underlying legislation. In passing the Parity Act, Congress afforded each State 3 years to assert its right not to be pre- empted by the federal regulatory scheme. 12 U.S.C.A. 3804. Congress enacted the law in- cluding that provision in 1982, some fourteen years before the suspect 1996 regulation was promulgated. During the three year window from 1982 to 1985, neither the New Jersey legis- lature nor that of any other State could predict that the OTS, or any other regulatory agency, someday would turn the salutary congressional goal of ensuring the availability of alternative mortgages on its head by sanctioning what ar- guably amounts to predatory lending practices by aia i 5 state chartered institutions. As explained by Judge King, the countenance of those practices, by the federal regulations’ own admission, finds no support in the intent manifested by Congress when it enacted the Parity Act. That such ultra vires regulation came into being only after the states were no longer free to exempt themselves, compounds the injustice of allowing such lending practices the safe haven accorded by pre-emption in these circumstances.” Id. at 73. Mr. Glukowsky petitioned the court to reconsider its decision in that Congress through the adoption of the Depository Institutions Deregulation and Monetary | Control Act of 1980, 12 U.S.C. §1735f-7A(b)(4) (DIDMCA) | specifically left the regulation of prepayment penalties, attorney's fees, late charges and similar limitations de- signed to protect borrowers on first residential home mortgages to the states if they chose to opt out of the federal scheme. The motion for reconsideration was denied on June 15, 2004. ts sa Yuritch v. Countrywide A similar complaint was filed against Countrywide as was filed against Equity One. Countrywide filed a motion to dismiss for failing to state a claim alleging the same defenses as Equity One. The trial court granted the motion to dismiss. Yuritch filed his appeal! which was granted and the Appellate Division reversed the trial court for the Same reasons as it did in Glukowsky. The New Jersey Supreme Court, relying on its decision in Glukowsky, 6 reversed the Appellate Court and reinstated the dismissal in its decision of July 8, 2004. (App. 28) oe Vv REASONS FOR GRANTING THE PETITION I. This court should resolve the conflict between Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA) 12 U.S.C. §1735(f)-7(a) and the Alternative Mort- gage Transaction Parity Act (AMPTA or Parity Act) as to whether State laws adopted pursuant to the limited opt-out of DIDMCA are pre- empted by AMPTA and its regulations. The issue concerning the conflict between the Deposi- tory Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA) 12 U.S.C. §1735(f)-7(a) and the Alter- native Mortgage Transaction Parity Act (AMPTA or Parity Act) 12 U.S.C. §§3801 et seq. as to whether State laws adopted pursuant to the limited opt-out of DIDMCA are pre-empted by AMPTA and its regulations, is one of first impression. There appear to be no reported decisions which address this conflict. The issues before the court can be narrowed to a very simple analysis. The central issue concerns the interplay between AMPTA and DIDMCA. AMPTA provided for lenders to make alternative mortgages as defined by the Act. DIDMCA, specifically provides for State consumer legislation regulating first mortgage loan interest and interest related charges. The court must determine if the general grants of authority under the Parity Act somehow trump the specific reservations of authority to the States in DIDMCA. This determination is critical where a loan is covered under both acts as in the instant case. 7 DIDMCA applies to the instant loan. The act sets forth the requirements for loans to be covered as follows: (a) The loan must be a first lien on residential property; (b) The loan must have been made after March 1, 1980; and (c) The loan must be made by a qualified lender under the act. (see 12 U.S.C. §1735f-7a(1)) In the instant case each of these criteria are met. The loan was a first lien on Mr. Glukowsky’s residence and was made on October 29, 1999. Finally, Equity One is a lender as defined by the Act. The same is true of Mr. Yurtich’s loan. For a loan to be subject to AMPTA it must meet the following criteria: (a) The loan must be an alternative mortgage transaction; (b) The loan must be made by a qualified hous- ing creditor; and (c) The housing creditor must hold a valid state license to lend. In Mr. Glukowsky’s case, the courts below have held that the balloon mortgage was an alternative mortgage. Equity One is a qualified housing creditor as it made more than five real estate secured loans in the preceding year. Equity One is a licensed lender by the State of New J ersey. In the Mr. Yuritch’s case, the courts below have held that the variable rate mortgage was an alternative mortgage. Countrywide is a qualified housing creditor as it made more than five real estate secured loans in the 8 preceding year. Countrywide is a licensed lender by the State of New Jersey. The loans in the instant case are clearly covered by both acts. The regulations under each act are clearly in conflict. The AMPTA regulation 12 C.F.R. §560.220 with 12 C.F.R. §560.34 provides that a lender may charge a prepayment penalty. Under the opt-out provision of DIDMCA Congress vested with the States the regulation of interest and interest charges. DIDMCA 12 U.S.C. §1735f-7a(b)(4) provides that: “Any time after March 1, 1980, any State may adopt a provision of law placing limitations on discount points or such other charges on any loan, mortgage, credit sale or advance described in subsection (a)(1) of this section.” 12 U.S.C. §1735f-7a(a)(1) provides a description of those charges. | “The provision of the constitution or laws of any State expressly limiting the rate or amount of interest, discount points, finance charges, or other charges which may be charged taken, received or reserved.” It is clear from the plain language of the statute that Congress vested in the States the ability to regu- late all aspects of first mortgage loan charges including prepayment penalties as long as the State adopted such a law after March 1, 1980. This is important.to note as the laws and regulations relied on by both Mr. Glu- kowsky and Mr. Yuritch were adopted after March 1, 1980. Those laws are N.J.S.A. 17:11C-23, N.J.S.A. 17:3B-23 and N.J.A.C. 3:15-10.1(b). All of these laws 9 restrict the ability of lenders in New Jersey to charge a prepayment penalty. N.J.A.C. 3:15-10.1(b) applies specifically to the lenders in the instant action and specifically prohibits prepayment penalties for all mortgages in New Jersey. “A borrower may repay a first mortgage loan, sec- ond mortgage loan or consumer loan at any time without penalty.” The New Jersey Supreme Court has incorrectly stated that DIDMCA and the Parity Act are unrelated laws. The two laws must be read in harmony both in their respective Scope and purpose. There is no dispute below that New Jersey was authorized by the limited opt out provisions of DIDMCA to enact laws restricting prepayment penalties. The problem is the fact that pursuant to DIDMCA that authority was specifically reserved to the States. This must be balanced against the general preemption found by the Court in the Parity Act. The problem with the Court’s interpretation is that a prepayment penalty is not inher- ent in any type of alternative mortgage. In fact this position has been explicitly rejected by the OTS when it adopted its revised rules in 2002. 67 Fed. Reg. 20470 (April 25, 2002) (App. 140) and 67 Fed. Reg. 60545 (Sep- tember 26, 2002) (App. 176) This analysis was used by the court in First Gibraltar Bank, FSB uv. Morales, 19 F.3d 1032 (5th Cir. 1994), if a law impedes the making of an alternative mortgage such as the Texas Homestead law which made reverse mortgages impossible, the state law must yield. Under DIDMCA, a state may at any time adopt a law which restricts discount points, finance charges, and other charges such as prepayment penalties and late charges. New Jersey was specifically authorized by Congress in the limited opt out provision of DIDMCA to 10 regulate points, late charges, attorneys fees and prepay- ment penalties. To suggest otherwise would be to render the limited opt out provision of DIDMCA a nullity. This interpretation is supported by the OTS as they noted in footnote 19 that the Parity Act makes no reference to fees or penalties. It is of note that the Parity Act makes no ref- erence to fees and penalties nor does it di- rect federal regulators to consider their impact on alternative mortgages. 67 Fed. Reg. 20470 (September 26, 2002) AMPTA loans are not exempt from DIDMCA. It is important to note that the Parity Act must be read in conjunction with DIDMCA. 12 U.S.C. §3805 of AMPTA states that section 501(c)(1) of DIDMCA shall not apply to transactions which are subject to this chapter. This is important because that is the only part of DIDMCA where Parity Act loans are exempted. Section 501(c)(1) is the portion of the act concerning OTS consumer protection regulation of loans secured by mobile homes. Congress was aware of its actions and only exempted alternative mortgage transactions (AMTS) from a small portion of DIDMCA. Congress could have easily stated that all Parity Act loans would be exempt from the opt-out provisions of DIDMCA. Congress chose not to do so. New Jersey was specifically authorized by Congress in the limited opt-out provision of DIDMCA to regulate interest, discount points, late charges, attorney's fees, prepayment penalties and other loan related charges. To suggest otherwise would be to render the limited opt-out provision of DIDMCA a nullity. Congress is presumed to know statutes it has passed and “absent a clear manifestation of contrary intent, a newly enacted statute is presumed to be 11 harmonious with existing law.” US. v, Langley, 62 F.3d 602, 605 (4th Cir. 1995) en banc, cert. denied, 116 S.Ct. 797 (1996). DIDMCA provides for a regulation of interest and its component charges. AMPTA provided for a different type of mortgage loan other than traditional 30 year fixed rate mortgages such as variable rate mortgages, balloon mortgages and reverse mortgages which were not gener- ally available in many states in 1982. The issue in this case concerns loans which were clearly governed by both laws. The courts have uniformly held that the scope of DIDMCA is broad and Congress specifically reserved to the States the option to regulate these charges. See Smith v. Fidelity Consumer Discount Co., 898 F.2d 907 (3rd Cir. 1990). As of this date the courts have refused to address the issue of the scope and effect of the opt-out provision of DIDMCA. The court should. grant this petition to address this issue. II. This court should confirm that the 1996 OTS regulations were ultra vires as the OTS has admitted. The court should grant this petition for a Writ of Certiorari in order to close a tremendous regulatory hole which has allowed predatory lending to flourish. Justice Zazzali in his dissent below crystallized the issue when he wrote: “I write further only to underscore the point that affording lenders protection under the 1996 regu- lation, which by now has been universally recog- nized as misguided, becomes especially unjust 12 when viewed in conjunction with the sequence of events relating to the “opt-out” mechanism pro- vided by Congress when it enacted the underlying legislation. In passing the Parity Act, Congress afforded each State 3 years to assert its right not to be pre- empted by the federal regulatory scheme. 12 U.S.C.A. 3804. Congress enacted the law in- cluding that provision in 1982, some fourteen years before the suspect 1996 regulation was promulgated. During the three year window from 1982 to 1985, neither the New Jersey legislature nor that of any other State could predict that the OTS, or any other regulatory agency, someday would turn the salutary congressional goal of en- suring the availability of alternative mortgages on its head by sanctioning what arguably amounts to predatory lending practices by state chartered institutions. As explained by Judge King, the countenance of those practices, by the federal regulations’ own admission, finds no sup- port in the intent manifested by Congress when it enacted the Parity Act. That such ultra vires regulation came into being only after the states were no longer free to exempt themselves, com- pounds the injustice of allowing such lending practices the safe haven accorded by pre-emption in these circumstances.” Id. at 73. It is rare that any agency will candidly admit that a prior action taken was outside the scope of its legislative authority. Such a statement should not be lightly ignored. The OTS wrote: _ A AA st ere 13 “One of the congressional findings underlying the Parity Act was that OTS and other federal regu- lators had adopted regulations authorizing their federally chartered institutions to offer alterna- tive mortgages, and that the Purpose of the Act was to eliminate the discriminating impact of those regulations. OTS regulations on prepay- ment penalties and late fees, however, were not adopted to enable federal thrifts to engage in al- ternative mortgage financin , but rather to per- mit federal thrifts the flexibility to exercise their lending powers in a uniform federal scheme. See 12 C.ER. 560.2(a). Therefore, OTS does not be- lieve that Congress intended that regulations such as these would offer a basis for claiming dis- criminatory treatment or were needed to provide parity with federally charted institutions.” 67 Fed. Reg. 20470 (April 25, 2002) (Appendix at 140). When the OTS later adopted the final rule in Septem- ber of 2002, it had not changed its position in this regard as it wrote: “If Congress had viewed the regulation of prepayment penalties as essential to parity, it is unlikely that Congress would have imposed a regulatory scheme that, at the time of its enact- ment, ensured different treatment among the various state creditors.” 67 Fed. Reg. 60545- 60546 (September 26, 2002) (Appendxi at 176- 177). OTS has agreed that its belated 1996 “Clarification” was unauthorized and contrary to the federalism princi- ples stressed in recent decisions of this Court. 14 Chevron Deference Is Inappropriate. The OTS is not entitled to deference under Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-43 (1984). Chevron requires a two-part test: first, the Court inquires whether the plain language of the statute addresses the precise issue. If so, that is the end of the matter, because courts as well as agencies must give effect to the unambiguously expressed intent of Congress. Id. If, however, the statute is silent or ambiguous, the agency’s interpretation will be upheld if it is a permissible construction of the statute — so long as it is a matter within the agency’s authority. Id. In determining whether a statute is ambiguous, a court is guided by reference to the language itself, the context in which the language is used, and the broader context of the statute as a whole. U.S. v. Wilkes, 120 F.3d 468, 469-70 (4th Cir. 1997), cert. denied sub nom. Cameron v. U.S., 115 S.Ct. 885 (1998). The Parity Act provision at issue is whether “An (AMT) may be made by a housing creditor in accordance with this section, notwithstanding any State constitution, law or regulation.” 12 U.S.C. §3803(c). The plain meaning of those words is that State Laws that would prevent AMTs from being made are preempted, and that State laws that do not interfere with the making of AMTs are not preempted. The broader context of the statute itself compels this result: the pur- pose of the Act was to foster the making of AMTs by nonfederal lenders. There is no other purpose described in Section 3801(9b) that would envision preemption of State laws beyond those that prevent the making of AMTs. Hence, the federal statute not being ambiguous, there is nothing for OTS to construe; State laws regulating pre- payment penalties do not obstruct the making of AMTs 15 and, therefore, are not preempted by Section 3803(c). This position has been echoed by the OTS in its recent rulemak- ing. One of the congressional findings underlying the Parity Act was that OTS and other federal regu- lators had adopted regulations authorizing their federally charted institutions to offer alternative mortgages, and that the purpose of the Act was to eliminate the discriminatory impact of those regulations. OTS regulations on prepayment pen- alties and late fees, however, were not adopted to enable federal thrifts to engage in alternative mortgage financing, but rather to permit federal thrifts the flexibility to exercise their lending pow- ers in a uniform federal scheme. See 12 CER. 560.2(a). Therefore, OTS does not believe that Congress intended that regulations such as these would offer a basis for claiming discriminatory treatment or were needed to provide parity with federally charted institutions. Yet even if the Parity Act’s silence were found to be ambiguous on the subject of prepayment penalties, the OTS would still not be entitled to deference. Its conclusion in 1996 that State laws regulating prepayment penalties were preempted by the Parity Act was (i) flatly inconsis- tent with its own then — effective regulations, which were limited to those that described and defined AMTs, see 48 Fed. Reg. 23053, and (ii) an impermissible construction of the Parity Act, because it would render the Act’s opt-out Provision a nullity, see infra. The OTS’s 1996 opinion on preemption is also rebutted by another section of the Garn Act of which the Parity Act is a part, 12 U.S.C. §1701j-3, which expressly preempted State due-on-sale restrictions. The legislative history shows that Congress recognized the extraordinary intrusion into state police 16 powers accomplished by preemption, and set out in fine detail its reasons for doing so. Excerpts from Senate Report, pp. 3074-79, 3110-12. In that manner, Congress made known its “clear and manifest purpose” to preempt due-on-sale restrictions in 12 U.S.C. §1701j-3. Compare Section 1701j-3 with the sharply focused language of Section 3803(a)(3) and Section 807 of the Parity Act. Congress said nothing about preempting State prepay- ment penalty laws either in the Parity Act or its legislative history, even though prepayment penalty statutes are similar to due-on-sale restrictions as exercises of state police power over lending practices. Had Congress in- tended to preempt State laws governing prepayment penalties in the Parity Act, surely there would be at least a fingerprint in the legislativé history so indicating. Moreover, when the issue is whether Congress has preempted or authorized preemption of State law, it is inappropriate for courts to grant deference under Chevron. See Brown & Williamson Tobacco Corp. v. FDA, 153 F.3d 155, 162 (4th Cir. 1998) (Court should strictly scrutinize agency interpretations of its own authority), cert. granted, 119 S.Ct. 1495 (1999); Commonwealth of Virginia Depart- ment of Education v. Riley, 106 F.3d 559, 565 n.4, 566-67 (4th Cir. 1997) en banc (Chevron deference inappropriate when congressional authorization principal issue for decision). In this case, treating New Jersey in a manner consis- tent with her constitutional status requires the court to make an effort to reconcile federal and state statutory schemes, rather than ousting New Jerseys Consumer Protection limitations. Here, as in other cases involving overlapping federal and state consumer protection legisla- tion, express statutory language of preemption is to be ld b 17 interpreted narrowly, with a presumption against preemp- tion. of the histarig Piae powers vi sites. Tris correct approach is illustrated in recent decisions of the Supreme Court of the United States. For example, in the context of employee benefits, the Supreme Court has rejected an expansive view of preemption and instead applied lan- guage of express preemption more strictly, with a “pre- sumption against preemption” of state law alleged to conflict with ERISA. See New York Conference of Blue Cross & Blue Shield Plans v. Travelers Insurance Co., 514 U.S. 645, 655 ( 1995); California Division of Labor Stan- dards Enforcement v. Dillingham Construction, N.A., Inc., 519 U.S. 316, 331-32 (1997). The plain language of section 3803(c) considered in light of the history and structure of the Parity Act, and the presumption against preemption, supports the conclusion that Congress did not authorize the 1996 regulatory action of OTS, maki Chevron deference inappropriate: [a] precondition to deference under Chevron is a congressional delegation of administra- tive authority. No deference is due the [agency] construc- tion of the Act unless it is acting within the bounds of its congressionally-established authority.” Brown & Wiliiam- son Tobacco, 153 F.3d at 161 (citation omitted). Accord, Intl Assoc. of Indep. Tanker Owners v. Locke, 148 F.3d 1053, 1067 (9th Cir. 1998) (“Preemption by regulations enacted by a federal agency does not occur if that agency is acting beyond the scope of its delegated powers”), cert. granted, 68 U.S.L.W. 3152 (1999). As noted previously, the OTS has conceded this in its effort to correct the regula- tions. Defendant Equity One has cited Smiley v. Citibank (South Dakota), N.A., 517 U.S. 735 (1996) and Fidelity Federal Savings and Loan Ass’n v. De La Cuesta, 458 U.S. NS ee, 18 141, 153-54 (1982). However, these cases are inapposite, because they do not involve interpretation of express statutory language of preemption setting forth the intent of Congress: See Cipollone v. Liggett Group Inc., 505 U.S. 504, 517 (1992) (“When Congress has considered the issue of preemption and had included in the enacted legislation a provision explicitly addressing that issue, and when that provision provides a reliable indicium of congressional intent with respect to state authority, there is no need to infer congressional intent to pre-empt state laws from the substantive provisions of the legislation”) (citations omit- ted); accord, Casino Ventures v. Stewart, 183 F.3d 307, 312 (1999), cert. denied, 528 U.S. 1077 (2000) (express preemp- tion provisions are “strong evidence that Congress did not wish to extend preemption any further”) (quoting Cipol- lone, 505 U.S. at 517; Lowe v. Sporicidin International, 47 F.3d 124, 128 (4th Cir. 1995) (“It seems clear to us that the Supreme Court’s preemption analysis in Cipollone makes it clear that our narrower view of FIFRA preemption is preferable.”) Fidelity Federal concerned a regulation for federal thrifts issued by the Federal Home Loan Bank Board under a broad grant of rulemaking authority in the Home Owner’s Loan Act of 1933 (“HOLA”). See 12 U.S.C. §1464(a). The Court held that a regulation preempting state limitations on due-on-sale clauses was a valid exer- cise of the FHLBB’s plenary regulatory authority with respect to federal savings and loans: “The language and history of HOLA convince us that Congress delegated to the Board, ample authority to regulate the lending prac- tices of federal savings and loans so as to further the Act’s purposes, and that c is consistent with those purposes”. 458 U.S. at 159. 19 In contrast, the Parity Act contains no such broad grant of authority for OTS to issue regulations for state- chartered mortgage companies. Rather, Congress strictly limited the task assigned the OTS in the Parity Act to assure States an opportunity to make an informed choice and participate jointly in the regulation of AMTs by state- chartered housing creditors. Moreover, even OTS admitted that its 1996 regulation was not an exercise of plenary regulatory authority, but a mere clarification of the Parity Act, “to eliminate possible confusion.” ~ Smiley concerned a regulation for national banks issued by the OCC under a broad grant of rulemaking authority in the National Bank Act. The Court held that a regulation interpreting the word “interest” preempted state law. However, the Court emphasized that it was not dealing with the question of whether a statute is preemp- tive, and it recognized that a statutory provision dealing with preemption would implicate the presumption against preemption and the clear statement rule. See Smiley, 517 US. at 743-44 (citing Cipollone, 505 U.S. at 518). In contrast, this case concerns express language of preemption in 12 U.S.C. §3803(c) and a statutory design that evinces clear congressional intent not to disturb state laws that do not prevent or significantly interfere with the ability of housing creditors to make, purchase and enforce AMTs. The case against preemption is espe- cially strong where — as here — the federal and state - schemes are so manifestly compatible. New Jersey’s longstanding limitations on prepayment penalties existed alongside federal statutes and regulations for more than a decade before OTS announced its novel “clarification” in 1996. New Jersey’s limitations on prepayment penalties 20 never prevented or obstructed state chartered housing creditors from making AMTs. Congress is presumed to know what statutes it has passed, and “absent a clear manifestation of contrary intent, a newly enacted ... statute is presumed to be harmonious with existing law.... ” U.S. v. Langley, 62 F.3d 602, 605 (4th Cir. 1995) en banc, cert. denied, 116 S.Ct. 797 (1996). The existing (in 1982) NCUA statute (the Federal Credit Union Act — 12 U.S.C. §1757(5)(A)(viii) — barred the imposition of prepayment penalties. The Parity Act may most easily and logically be harmonized with that law by interpreting the Parity Act not to have any effect on State Laws limiting prepayment penalties. The Parity Act provided that States could opt out from a preemption provision of Section 3803 within three years from October 15, 1982. Section 3804. New Jersey did not do so because AMTs were already legal in New Jersey. Indeed, when the opt out window closed in 1985, the regulations identified by the FHLBB in its three Notices to Housing Creditors not only failed to preempt State laws regulating prepayment penalties, they specifically stated that federal regulations of general application to mortgage loans were not applicable to AMTs. 48 Fed. Reg. 25053. Since the OTS waited until 1996 to opine that State laws regulating prepayment penalties were preempted by the Parity Act, a state legislature would need the powers of Nostradamus to have known in October 1985 — when the “opt-out window” closed that it should opt out from a federal intrusion into state law not to be accomplished for eleven years. The OTS has now even suggested that Congress should allow a new period for opt-out from the Parity Act for this very reason. 21 not defined until 1996, after the opt-out period had ex- pired. Such a bizarre interpretation must be shunned, whether advanced in the belief that Congress intended to sandbag the States, or in the belief that State statutes can be vitiated by an agency opinion issued eleven years after the fact (an opinion flatly inconsistent with the regulations that were contemporaneously adopted). A finding of preemption is inconsistent with the notice of concurrent sovereignty. See Gregory v. Ashcroft, 501 US. 452, 457 (1991). Moreover, to countenance such a disingenuous method of preemption would contravene the principle that preemption of State laws is not a power that is exercised lightly. Id. 501 U.S. at 460. It would render the “clear statement” rule meaningless to allow an agency to decide after the opt-out window closes that State law is pre- empted in a brand new area. See Gregory, 501 U.S. at 461: the clear statement rule assures that Congress “has in fact faced, and intended to bring into issue, the critical matters involved in the judicial decision.” In addition, the opt-out provision provides that States could opt out from the preemption accomplished by the Act. See Section 3804: States may opt out if “such State does not want the preemption provided in section 3803 of this title to apply to AMTs” (emphasis supplied). The underlined words would be meaningless if Congress intended preemption to occur either (i) by federal agency, or (ii) after the opt-out window closed. Surely, Congress meant that States would be able to make a knowing decision about whether to opt out. Pennhurst v. State School & Hospital v. Hailderman, 451 US. 1, 17 (1981). 22 Novel regulatory interpretations that expand agency jurisdiction are not entitled to deference. Brown & Wil- liamson Tobacco Corp., 153 F.3d at 155, 163, 168, 170, n.18 (rejecting novel interpretation expanding regulatory jurisdiction 60 years after passage of statute). New Jersey consumers have always been able to obtain AMTs and New Jersey’s ban on prepayment penal- ties has in no way limited their AMT options and alterna- tives. Moreover, the NCUA statute barred the imposition of prepayment penalties before passing the Parity Act. But even beyond this inconsistency, the OTS itself has recog- nized that the New Jersey Statutes protect consumers. See 12 C.F.R. §590(3)(c), dealing with state usury laws: “Noth- ing in this section preempts limitation in state laws on prepayment charges ... or other provisions designed to protect consumers.” (emphasis supplied). Indeed, that very regulation lends support to the view that Congress is sufficiently familiar with the importance of State laws regulating prepayment penalties that it would not pre- empt such laws in such an indirect manner. It is important to recognize that there is no estab- lished federal policy requiring uniformity or disfavoring limitations on prepayment penalties as a means of in- creasing the availability of credit. Congress allowed states to opt out of identified federal reguiations, which several states did, rebutting any argument based on uniform national standards for AMTs. Moreover, although the Depository Institutions Deregulation and Monetary Control Act of 1980, 12 U.S.C. §1735f-7a, preempted many State laws affecting first mortgage loans, Congress chose to allow the States to opt out of the act and re-regulate interest and interest charges, a field left 23 historically to State control. See Currie v. Diamond Mort- &age Corp. of Ill., 859 F 2d 1538, 1541-43 (7th Cir. 1988). As noted above, Congress has also made the policy determination that federal credit union borrowers should be permitted to prepay their loans without penalty, 12 U.S.C. §1757(5)(A)(viii). It also has prohibited prepayment penalties as a condition of eligibility for insurance of home equity conversion mortgages for elderly homeowners. 12 U.S.C. §1715z-20(d)(4). Thus, it cannot be said that federal policy disfavors limitations on prepayment penalties as a means of increasing credit availability. See Senate Report 97-463, Housing and Community Development Amend- ments of 1982 (Filed May 12, 1982) p. 55: “Through the Parity Act... housing creditors ... are being authorized to engage in transactions in accordance with regulations issued by those federal agencies for the institutions that they charter. This does not place non-federally char- tered housing creditors under the supervision of the federal agencies, but instead merely enables them to follow a federal program as an alterna- tive to State Law.” ? The federal “program” is the ability to make AMTs which in 1982 many States did not permit. That is why the federal program was an alternative to State law. Under federal law, loans made under NCUA authority could not impose prepayment penalties. 12 U.S.C. §1757(5)(A)(viii). Hence, if AMTs made through the NCUA were forbidden to impose prepayment penalties, the federal “program” envisioned by Congress could not be a program that required the ability to impose prepayment penalties as a necessary component. 24 Here, the core issue is about who has the authority to make important policy decisions. This Court should not conclude that the Parity Act’s silence on prepayment penalties conferred a license to regulate on OTS and the federal court to substitute their judgments for those of State legislatures. The Parity Act, properly read, respects State sovereignty and gives effect to the important State interests served by New Jersey's consumer protection statutes, without significantly interfering with the ability of housing creditors to make, purchase and enforce AMTs. As Judge King wrote: We agree with the reasoning set forth in the OTS’s Notice of Proposed Rulemaking. In accor- dance with that reasoning, we find that 12 C.F-R. § 560.220 is invalid to the extent it incorporates 12 C.FR. § 560.34, thereby regulating prepay- ment penalties assessed by state-chartered hous- ing creditors on AMTs covered by the Parity Act. Furthermore, as will be discussed, in our opinion, Shinn, Face, and Benay, as well as the OTS 1996 Opinion Letter, were incorrectly decided because they did not give proper consideration to: (1) Con- gress’s limited purpose in passing the Parity Act, to create a national market for AMTs; or (2) Con- gress’s limited intent, through the Parity Act’s preemption provision, to preempt only those state laws which prohibit or interfere with a housing creditor’s ability to make, purchase, or enforce AMTs. We hold that, to the extent 12 C.E-R. § 560.220 in- corporates the regulation of prepayment penalties under 12 C.E-R. §$ 560.34, and applies 12 C.ER. § 560.34 to AMTs issued by state-chartered hous- ing creditors, it is unlawful, because it exceeds the scope of authority Congress delegated to the OTS 25 under the Parity Act. Id., 360 NJ. Super. 1 at 36 (App. Div. 2003). 4 v CONCLUSION Predatory lending has become rampant across the country. The OTS and the Courts have observed that prepayment penalties are the primary tool used by these lenders to prey on consumer borrowers. States such as New Jersey have attempted to protect their citizens by passing laws prohibiting such charges pursuant to the opt- out provision of the Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA) 12 U.S.C. §1735(f)-7(a). Only to be frustrated in their attempt to enforce such laws the Court should grant this writ of certiorari to hold that the OTS regulations under AMPTA do not preempt these laws. Respectfully submitted, LEWIs G. ADLER, Esq. ROGER C. Mattson, Esq. App. i TABLE OF CONTENTS TO APPENDIX New Jersey Supreme Court Opinion: Glukowsky v. Equity One, Inc., 180 N.J. 49 (2004) oo.eececccccecceceseees App. 1 New Jersey Supreme Court Opinion: Yuritch v. Countrywide, __ N.J. __ (2004), 854 A.2d 917 CIPI scisnscnnsinsussonbuinscthahedidieldadlitaad ands tia aie App. 28 Superior Court of New Jersey Appellate Division Decision: Glukowsky v. Equity One, Inc., 360 NJ. ape 2 (Amp Tie, DIGI a sissviesssiitnsresatitsiniricdkanticcas App. 29 New Jersey Supreme Court Opinion: Glukowsky v. Equity One, Inc., denial of reconsideration dated CO TE, Di iver ainicdistnnapiialapiting ee App. 83 Text of the Alternative Mortgage Transaction Parity Act 12 U.S.C. 3801 et seq. .....cececcesesceseeees App. 84 Text of Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA) 12 IAS. SERINE GE TU csiicssneoninscniclenibied teat, tao App. 90 Text of Office of Thrift Supervision Parity Act Regulations 12 C.PAR. 84............ccsccoccocsoscosceoseore App. 105 Text of Office of Thrift Supervision DIDMCA Act Regulations 12 C.F.R. 590.1 et seq........ccccceseseee. App. 106 New Jersey Prepayment Law N.J.S.A. 46:10B-1 et DOT), .nossensnssnenssnenhahatnnsaecsséenbhbaasdinibeniiademmabaatniin App. 112 New Jersey Prepayment Regulation N.J.A.C. 3:15- Bok .scaspsesensionss cienesutinensbaumienbailate igen: ame ae amen App. 112 New Jersey Prepayment Regulation N.J.A.C. 3:15- WDE, snsnsesseesinssssicosésetaiiniaiibaecntinsiiabummieacs aan App. 126 SRS RR NS les 1 SO eM he Bh te ome G ii TABLE OF CONTENTS TO APPENDIX — Continued Page Office of Thrift Supervision Notice of Proposed Rulemaking, Alternative Mortgage Transaction Parity Act, 67 Fed. Reg. 20,468, April 25, 2002..... App. 128 Office of Thrift Supervision Notice of Final Rule, Alternative Mortgage Transaction Parity Act, 67 Fed. Reg. 60,542, September 26, 2002................ App. 161 Office of Thrift Supervision Delay of Final Rule, Alternative Mortgage Transaction Parity Act, 67 Fed. Reg. 76,304, December 12, 2002................. App. 220 App. 1 SUPREME COURT OF NEW JERSEY A-22 September Term 2003 MARK GLUKOWSKYy, Plaintiff-Respondent, Vv. EQUITY ONE, INC., a Delaware Corporation, Defendant-Appellant. Argued February 3, 2004 — Decided May 26, 2004 On certification to the Superior Court, Appellate Division, whose opinion is reported at 360 N.J. Super. 1 (2003). Mark S. Melodia argued the cause for appellant (Reed Smith, attorneys; Mr. Melodia and Lauren Graham Delehey, on the brief). Lewis G. Adler argued the cause for respondent (Mr. Adler, attorney; Mr. Adler, Roger C. Mattson and Louis D. Fletcher, on the briefs). Dennis R. Casale argued the cause for amicus curiae Mortgage Bankers Association of New Jersey (Levy & Watkinson and Pepper Hamilton, attorneys; Mr. Casale and E. Robert Levy of coun- sel; Mr. Casale, Mr. Levy and Michael G. Petrone, on the brief). David McMillin argued the cause for amicus cu- riae Legal Services of New Jersey (Melville D. Miller, Jr, President, attorney; Mr. McMillin, Carrie Ferraro, Gwen E. Orlowski and Rebecca Shore, on the brief). App. 2 William H. Hyatt, Jr. submitted a brief on behalf of amicus curiae National Home Equity Mort- gage Association (Kirkpatrick & Lockhart, attor- neys). Michael M. Horn submitted a brief on behalf of amici curiae American Bankers Association, American Financial Services Association, America’s Community Bankers, Consumer Bankers Associa- tion, Consumer Mortgage Coalition, Mortgage Bankers Association of America, New Jersey Fi- nancial Services Association and New Jersey League-of Community Bankers (McCarter & Eng- lish, attorneys; Mark D. Knoll, on the brief). JUSTICE ALBIN delivered the opinion of the Court. In 1996, the federal Office of Thrift Supervision (OTS) issued a regulation authorizing state housing lenders to charge prepayment penalties in alternative mortgage transactions (AMT). Alternative Mortgage Transaction Parity Act, 12 C.FR. § 560.220 (1996). That regulation would preempt our state laws that prohibit housing lenders from charging prepayment penalties. Plaintiff contends that OTS exceeded the scope of authority dele- gated to it by Congress under the Alternative Mortgage Transaction Parity Act of 1982, 12 U.S.C.A. §§ 3801-06 (Parity Act), when it issued 12 C.FER. § 560.220. In deter- mining whether that federal regulation is valid, we ad- dress principles concerning the scope of authority granted to a regulatory agency, preemption, and comity. I. In 1999, plaintiff Mark Glukowsky secured a $72,000 mortgage loan from defendant Equity One to finance the purchase of a home in Mount Laurel. The financing App. 3 arrangement provided a fixed-interest rate over a ten-year term at the end of which the loan, though not fully amor- tized, would mature. On the maturity date in 2009, plain- tiff would owe $62,021.25 of the principal and have the choice to pay the entire principal or refinance the loan with Equity One or another lender. This method of financ- ing a residential mortgage is commonly referred to as a “balloon lo»n” and constitutes an AMT under the Parity Act. An AMT is a loan with an interest rate or finance charge that may be adjusted or renegotiated; a loan with a fixed-interest rate that matures before it is fully amor- tized, thus implicitly permitting rate adjustments; or a loan with other variations “not common to traditional fixed-rate, fixed-term transactions.” 12 U.S.C.A. § 3802(1). As part of the mortgage contract, plaintiff agreed to pay a prepayment fee to Equity One if he repaid the loan in full during the first three years of its term.’ The mort- gage contract also contained a “due on sale” clause, provid- ing that if the mortgaged property was sold or transferred without Equity One’s prior written consent, the full amount of the loan would be due on demand. In 2001, plaintiff sold the Mount Laurel residence subject to the mortgage and “due on sale” clause. Equity One exercised its right to demand full payment of the loan and sent plaintiff a pay-off statement. That statement included a two percent prepayment fee in the amount of $1,427.97 because the outstanding balance on the loan was to be ' Under the terms of the Prepayment Rider, full repayment of the loan in the first year would result in a prepayment fee equal to three percent of the amount being prepaid, in the second year a two percent fee, and in the third year a one percent fee. + App. 4 paid within the second year of the mortgage term. Plaintiff paid the prepayment fee under protest. Plaintiff later filed a complaint alleging that Equity One had violated New Jersey's Prepayment Penalty Law, N.J.S.A. 46:10B-2, Market Rate Consumer Loan Act, N.J.S.A. 17:3B-22, and Consumer Fraud Act, N.J.S.A. 56:8-2, by collecting the prepayment fee. Equity One moved to dismiss the complaint on the ground that it was preempted by 12 C.F-R. § 560.220, which barred enforce- ment of any state law that prohibited a state-chartered lending institution from charging a prepayment fee on an AMT. Before the promulgation of 12 C.ER. § 560.220 by OTS in 1996, federal lenders were free to charge prepay- ment fees on AMTs- pursuant to 12 C.F-R. § 560.34, while state lenders, such as Equity One, were subject to state laws, many of which prohibited prepayment fees in real estate transactions. The adoption of 12 CFR. § 560.220 placed state-chartered housing creditors on an equal footing with their federal counterparts by extending 12 C.FE-R. § 560.34 to state lenders and preempting any state law that forbid charging a prepayment fee on an AMT. The Law Division found that 12 C.FR. § 560.220 barred enforcement of New Jersey’s Prepayment Penalty Law and dismissed the complaint on the basis of federal preemp- tion. The Appellate Division reversed and held that OTS exceeded the scope of its authority under the Parity Act when it applied 12 C.F-R. § 560.34 to state lending institu- tions engaged in AMTs. Glukowsky v. Equity One, Inc., 360 N.J. Super. 1, 12 (2003). The panel concluded that Con- gress did not intend the Parity Act to preempt state App. 5 consumer protection laws that prohibited the imposition of prepayment fees on real estate transactions in general, and on AMTs in particular. Jd. at 37-39. The panel rein- stated the claims that alleged violations of New Jersey’s Prepayment Law and Consumer Fraud Act, but affirmed the dismissal of the claim arising under the Market Rate Consumer Loan Act because that statute did not apply to defendant. Id. at 48. Plaintiff was allowed to amend his complaint to allege other claims arising under federal and state law.’ Ibid. The panel did not address whether to apply its decision retroactively, leaving that issue to be developed on remand. Jbid. We granted Equity One’s petition for certification. 177 N.J. 575 (2003). We also granted the motions of the Ameri- can Bankers Association, et al.,’ the National Home Equity Mortgage Association, the Mortgage Bankers Association of New Jersey, and Legal Services of New Jersey for leave to participate as amici curiae. * In his brief before the Appellate Division, plaintiff argued for the first time that defendant’s collection of a prepayment penalty violated the federal due-on-sale regulation, 12 C.FR. § 591.5(b)(2)(i); the New Jersey Licensed Lenders Act, N.J.S.A. 17:11C-1 to -49; and general contract law principles prohibiting unconscionable contract terms. Glukowsky, supra, 360 N.J. Super. at 10. Plaintiff neither pleaded those claims in his complaint nor moved to amend the complaint to state such claims. Jd. at 10-11. Nevertheless, after reinstating the complaint, the Appellate Division allowed plaintiff to amend the complaint to assert those new claims. Id. at 47. * Amici are American Bankers Association, American Financial Services Association, America’s Community Bankers, Consumer Bankers Association, Consumer Mortgage Coalition, Mortgage Bankers Association of America, New Jersey Financial Services Association, and New Jersey League of Community Bankers. Those organizations represent mortgage lenders who make and service mortgage loans in New Jersey and nationwide. See St eke See App. 6 The central issue in this case is whether the Parity Act gave OTS the authority to adopt the challenged regulation. To determine whether 12 C.F-R. § 560.220 is a valid expression of legislative authority, we first turn to the history of the Parity Act and the rule adopted by OTS. Il. A. In the late 1970s and early 1980s, an increasingly volatile interest rate market seriously impaired the ability of housing creditors to provide consumers with fixed-term, fixed-rate mortgages secured by residential property. Natl Home Equity Mortgage Ass’n v. Face, 239 F:'3d 633, 635 (4th Cir.), cert. denied, 534 U.S. 823, 122 S. Ct. 58, 151 L. Ed. 2d 26 (2001); 12 U.S.C.A. § 3801(a)(1). Those market conditions made it exceedingly difficult for consumers to obtain and afford credit for the purchase of a home. See Grunbeck v. Dime Sav. Bank of N.Y., FSB, 74 F.3d 331, 343 (1st Cir. 1996). In response to the precarious state of the residential mortgage market, “Congress enacted the Garn St. Ger- main Depository Institutions Act of 1982 to revitalize the housing industry by strengthening the financial stability of home mortgage lending institutions and ensuring the availability of home mortgage loans.” Face, supra, 239 F.3d at 635 (internal quotation marks omitted). Title VIII of that legislation, the Parity Act, allowed state-chartered housing creditors to offer alternative mortgages if they agreed to operate in accordance with federal regulations. Ibid. (citing S. Conf. Rep. No. 97-641, at 94 (1982), re- printed in 1982 U.S.C.C.A.N. 3128, 3137). The ability of state lending institutions to issue AMTs was seen by App. 7 Congress as essential to ensure the nation an adequate supply of housing credit. 12 U.S.C.A. § 3801(a)(2). Before passage of the Parity Act, federally-chartered lenders were authorized to engage in alternative mortgage financing. See 12 U.S.C.A. § 3801(a)(3). However, twenty-six states either prohibited state-chartered lenders from engaging in AMTs or imposed on those lenders burdensome restric- tions. Alternative Mortgage Transaction Parity Act; Pre- emption, 67 Fed. Reg. 60,542, 60,543 (2002) (to be codified at 12 CFR. § 560.220) fhereinafter 2002 Final Rule}. The express legislative purpose of the Parity Act is to eliminate the discriminatory impact that [fed- eral] regulations [authorizing federally chartered housing creditors to engage in AMTs] have upon nonfederally chartered housing creditors and provide them with parity with federally char- tered institutions by authorizing all housing creditors to make, purchase, and enforce alterna- tive mortgage transactions so long as the transac- tions are in conformity with the regulations issued by the Federal agencies. [12 U.S.C.A. § 3801(b) (emphasis added). ] To achieve the goals of the Parity Act, Congress granted to the Federal Home Loan Bank Board (FHLBB), the predecessor to OTS, and two other federal agencies, the rulemaking authority “to prevent discrimination against” state-chartered lending institutions engaged in “making, purchasing, and enforcing alternative mortgage transactions.”* 12 U.S.C.A. § 3803(a)(3). That rulemaking * State-chartered banks and state-chartered credit unions must comply with regulations issued by the Comptroller of the Currency for national banks and the National Credit Union Administration Board (Continued on following page) App. 8 authority included the power to promulgate regulations in furtherance of the Parity Act “notwithstanding any State constitution, law, or regulation.” 12 U.S.C_A. § 3803(a)(3) and (c). In 1989, the statute was amended to substitute OTS for the FHLBB as the agency regulating state-chartered housing lenders. Financial Institutions Reform, Recovery and En- forcement Act of 1989, Pub. L. No. 101-73, § 744(c), 103 Stat. 183 (1989) (codified at 12 U.S.C.A. § 3801(a)(3)). States were not bound involuntarily to the Parity Act. Those states wishing to opt-out of the Act’s preemption provisions only needed to certify an intention to do so within three years of its passage. 12 U.S.C.A. § 3804. New Jersey did not avail itself of that option. Glukowsky, supra, 360 N.J. Super. at 21. By not exiting the federal program within the three-year period, the State necessarily agreed to follow all applicable federal regulations, those in exis- tence then and those to be adopted in the future.” Congress directed OTS to “identify, describe, and publish those portions of [its] regulations that are inap- propriate for (and thus inapplicable to) ... nonfederally for federal credit unions, respectively. 12 U.S.C.A. § 3803(a)(1) and (2). All other non-federally-chartered housing creditors lending in reliance on the Parity Act must comply with regulations issued by OTS, or its predecessor, FHLBB. Id. § 3803(a)(3). ° Our dissenting colleagues suggest that, because the New Jersey Legislature did not anticipate OTS’s adoption of 12 C.FR. § 560.220, the regulation is infirm. However, when the states agreed to be bound by the federal regulatory framework involving the Parity Act, those states necessarily agreed to foilow all applicable federal regulations in furtherance of the Parity Act. The states knew that they could not exit the program merely because they disagreed with a particular federal regulation. Nowhere in this record is there a suggestion that New Jersey would have opted out had it known that OTS would adopt 12 C.F-R. § 560.220. App. 9 chartered housing creditors.”*® Pub. L. No. 97-320, § 807(b), 96 Stat. 1469 (1982). Based on the broad rulemaking authority delegated to it pursuant to 12 U.S.CA. 8§ 1463(a)(2), 1464(a) of the Home Owners’ Loan Act, 12 U.S.C.A. § 3803(a)(3), and § 807(b) of the Parity Act, OTS in 1996 adopted 12 CFR. § 560.220, giving state- chartered housing lenders the same authority to impose prepayment penalties on AMTs already possessed by their federal counterparts. Face, supra, 239 F3d at 640; Shinn v. Encore Mortgage Servs., Inc., 96 F Supp. 2d 419, 423-24 (D.N.J. 2000). 12 C.FR. § 560.220 extended the benefit of four federal regulations to state-chartered housing lenders engaged in AMTs, “notwithstanding any state constitution, law, or regulation.”’ Only one of those regulations, 12 * The FHLBB in 1983 issued a Final Rule that identified three of its regulations that “describe and define” AMTs, and thus also would be applied to state-chartered housing creditors: § 545.33(c), granting authority to engage in AMTs; § 545.33(e), limiting adjustments to loans secured by borrower-occupied property; and § 545.33(f)(4)-(11), imposing disclosure requirements on AMTs secured by borrower-occupied property. Implementation of New Powers; Limitation on Loans to One Borrower, 48 Fed. Reg. 23,032, 23,053 (1983). The FHLBB deemed all of its other regulations to be inappropriate and, therefore, inapplicable to AMTs. Ibid. The FHLBB did not identify any regulations that applied to mortgage loans generally, and specifically did not apply its regula- tions regarding prepayment penalties to state-chartered lenders. Jbid. " The version of 12 C.FR. § 560.220 made effective October 30, 1996 provided: Pursuant to 12 U.S.C. 3803, housing creditors that are not commercial banks, credit unions, or Federal Savings asso- ciations may make alternative mortgage transactions as de- fined by that section and further defined and described by applicable regulations identified in this section, notwith- standing any state constitution, law, or regulation. In accor- dance with section 807(b) of Public Law 97-320, 12 U.S.C. (Continued on following page) App. 10 C.F-R. § 560.34, is relevant to this case. That regulation provides: Any prepayment on a real estate loan must be applied directly to reduce the principal balance on the loan unless the loan contract or the bor- rower specifies otherwise. Subject to the terms of the loan contract, a Federal savings association may impose a fee for any prepayment of a loan. [12 C_.FE-R. § 560.34 (emphasis added).] By applying 12 C_.FR. § 560.34 to state lenders issuing AMTs, 12 C.F-R. § 560.220 clearly preempted enforcement of New Jersey's Prepayment Penalty Law. The adoption of 12 C.F-R. § 560.220 followed a 1996 OTS opinion letter holding that by virtue of the Parity Act Wisconsin-chartered savings and loan associations issuing AMTs were not subject to that state’s prepayment penalty law. Effect of Parity Act on Wisconsin Prepayment Penalty Statute, Op. Chief Counsel, OTS No. P-96-6 (Apr. 30, 1996). OTS reasoned that li]Jf state housing creditors were required to fol- low the Wisconsin Statute when making vari- able-rate mortgage loans, they would clearly be disadvantaged vis-a-vis federal thrifts — the very 3801 note, §§ 560.33, 560.34, 560.35, and 560.210 of this part are identified as appropriate and applicable to the ex- ercise of this authority and all regulations not so identified are deemed inappropriate and inapplicable. Housing credi- tors engaged in credit sales should read the term “loan” as “credit sale” wherever applicable. [Lending and Investment, 61 Fed. Reg. 50,951, 50,983 (1996) (to be codified at 12 C.E-R. § 560.220) [hereinafter 1996 Fi- nal Rule}.] ia og a App. 11 result Congress intended to prevent. The Wis- consin Statute thus appears to fall within the scope of laws preempted by the Parity Act. Ac- cordingly, state Savings associations and state housing creditors that are not state banks or credit unions and that originate variable-rate loans in conformity with all applicable OTS regu- lations need not comply with the Wisconsin Stat- ute. (Ibid. ]} Based on that analysis, 12 CFR. § 560.34 was made applicable to state lenders through 12 C.FR. § 560.220. In 2002, OTS proposed a rule change removing 12 C.F-R. § 560.34 from 12 C.FE-R. § 560.220, thereby eliminat- ing the preemption Provision that barred enforcement of state prepayment laws against state lenders engaged in AMTs. During that rulemaking process, OTS reexamined the appropriateness of regulating prepayment fees and late charges relating to AMTs by state lenders. See 2002 Final Rule, supra, 67 Fed. Reg. 60,542; Alternative Mort- gage Transaction Parity Act; Preemption, 67 Fed. Reg. 20,468 (2002) (to be codified at § 560.220) (proposed Apr. 25, 2002) [hereinafter 2002 Notice cf Proposed Rulemak- ing]; 2000 Advance Notice of Proposed Rulemaking, supra, 65 Fed. Reg. at 17,814. OTS acknowledged that whether Congress intended to preempt state laws governing prepayment fees fell within a “gray area.” 2002 Notice of Proposed Rulemaking, supra, 67 Fed. Reg. at 20,470. The Parity Act and its legislative history provided OTS with little direction as to which federal regulations were to apply to state-chartered housing creditors that engage in the making, purchasing, and enforcing of AMTs. 2002 Final Rule, supra, 67 Fed. Reg. at 60,543. When OTS App. 12 decided to regulate prepayment fees in 1996 pursuant to the Parity Act, it did so believing that Congress intended to remedy the disadvantage to state-chartered institutions that flowed from differing federal and state laws regulat- ing AMTs. 12 U.S.C.A. § 3801(b). By 2002, however, after 12 C.F-R. § 560.220 had been on the books for six years, OTS had knowledge that widespread use of prepayment penalties in sub-prime loans promoted predatory lending practices.” 2002 Final Rule, supra, 67 Fed. Reg. at 60,547- 48. In the year prior to passage of the Parity Act only about ten percent of sub-prime loans included prepayment penalties, but by 1999 that figure had risen to approxi- mately seventy to seventy-six percent. Jd. at 60,547 (citing data from the Joint HUD/Treasury Report on Recommen- dations to Curb Predatory Home Mortgage Lending (Apr. 20, 2000)). Anecdotal evidence also suggested that preda- tory lending practices disproportionately targeted minori- ties and the elderly. Ibid. Because the 1996 OTS regulation preempted state laws prohibiting prepayment penalties only as applied to AMTs, it also had the unintended consequence of creating an incentive for state lenders to favor AMTs over tradi- tional fixed-interest mortgages that still were subject to state prepayment penalty laws. See 2002 Final Rule, supra, 67 Fed. Reg. at 60,546; 2002 Notice of Proposed Rulemaking, supra, 67 Fed. Reg. at 20,469. Last, OTS no longer accepted the “apparent rationale” for its 1996 rule * Sub-prime loans have higher interest rates than prime loans and typically are extended to borrowers whose past credit problems make them a higher risk. Natl Home Equity Mortg. Ass’n v. OTS, 271 F Supp. 2d 264, 277 n.8 (D.C. Cir. 2003); 2000 Advance Notice of Proposed Rulemaking, supra, 65 Fed. Reg. at 17,814. App. 13 that absent preemption of state prepayment laws “state housing creditors would be disadvantaged vis-a-vis federal thrifts.” Id. at 60,543. Based on this new reality, OTS reasoned that state laws regulating prepayment fees and late charges should “reflect each state legislature’s judg- ment, after due consideration, about appropriate consumer protections applicable to state-chartered lenders.” Id. at 60,548. OTS would not “construe its authority under [the Parity Act] to frustrate these state efforts where another — less intrusive construction of [the Parity Act] is permissi- ble.” Ibid. In its 2002 Final Rule, effective J uly 2003, OTS eliminated § 560.34 from the list of federal regulations applicable to state-chartered housing creditors, finding that a creditor’s ability to assess prepayment fees was “not essential or intrinsic to the ability to offer alternative mortgages.” 2002 Final Rule, supra, 67 Fed. Reg. at 60,544. Nevertheless, OTS concluded in the 2002 Final Rule that its 1996 regulation was a permissible interpre- tation at the time. Jd. at 60,550. B. In light of that legislative and regulatory history, we return to the rationale provided by the Appellate Division for holding that OTS acted without legislative authority in adopting the 1996 version of 12 CFR. § 560.220. The appellate panel sought to divine what Congress intended when it spoke in terms of state-chartered lending institu- tions achieving parity with federally-chartered institutions in “making, purchasing, and enforcing alternative mort- gage transactions.” Glukowsky, supra, 360 N.J. Super. at 27, 36-38; 12 U.S.C.A. § 3803(a)(3). Did Congress intend a ) ; ; E> 2 - Z App. 14 narrow purpose, preempting only those state laws that prohibited state lenders from marketing AMTs or did Congress have a more expansive purpose, achieving competitive equality between state- and federally- chartered lenders? The panel interpreted the Parity Act as having the limited purpose of preempting only those state laws that prohibited or restricted a state-chartered lend- ing institution from marketing an AMT. Glukowsky, supra, 360 N.J. Super. at 40. The panel found that OTS had construed the purpose of the Parity Act too broadly by attempting to achieve “complete parity between federally and non-federally chartered housing creditors.” Id. at 37. In the panel’s view, Congress did not intend “that every AMT, throughout the nation, must contain, or at least offer, the same terms, down to the minutiae of regulating the fees and penalties which may be imposed.” Ibid. Accordingly, the 1996 extension of 12 C.FR. § 560.34 to state lenders was an impermissible interpretation of the Parity Act because the Act was not intended to create precise equality between state and federal lenders that issued AMTs. Although the Appellate Division acknowledged that an agency’s interpretation of a statute falling within its regulatory authority is entitled to deference, it found that the 1996 version of 12 C.FR. § 560.220 was “‘entitled to considerably less deference,” because it represented a sharp change from the agency’s prior interpretation of the Parity Act. Id. at 42-43 (quoting Good Samaritan Hosp. v. Shalala, 508 U.S. 402, 417, 113 S. Ct. 2151, 2161, 124 L. Ed. 2d 368, 383 (1993)). While noting that an agency may support a change of direction by a reasoned analysis, the panel concluded that the 1996 Final Rule “was not sup- ported by any reasoning at all.” Id. at 32. The panel relied App. 15 on language in the 2002 Notice of Proposed Rulemaking, in which OTS suggested that it had not explained sufficiently its reasons for adopting the 1996 rule and its departure from the prior standard of permitting state laws to regu- late prepayment fees in AMTs. Ibid. (citing 67 Fed. Reg. at 20,470). The panel considered the language in OTS’s 2002 Notice of Proposed Rulemaking a tacit admission that it had exceeded the authority delegated to it by Congress in promulgating the 1996 regulation. Jd. at 33. Reasoning that prepayment penalties do not prohibit or interfere with a housing creditor’s ability to make, purchase, or enforce AMTs, the panel concluded that OTS never had authority to apply 12 C.FR. § 560.34 to state-chartered lenders. We disagree with the conclusion reached by the Appellate Division that OTS exceeded the authority Congress delegated to it in the Parity Act. Congress’s intent is not entirely clear from the statutory language. We accept OTS’s explanation that its 1996 rulemaking represented one permissible interpretation of the Parity Act. OTS is the agency responsible for enforcing the Parity Act and its interpretation of that Act is entitled to sub- stantial deference. Moreover, the principle of comity instructs state courts to give due regard to a federal court’s interpretation of a federal statute. Dewey v. R.J. Reynolds Tobacco Co., 121 N.J. 69, 80 (1990). Federal courts uni- formly have concluded that OTS in 1996 acted within the authority delegated to it by Congress by incorporating § 560.34 into 12 C_FR. § 560.220 to allow state-chartered lenders to impose prepayment penalties in AMTs. McCarthy v. Option One Mortgage Corp., 362 F.3d 1008, 1010-11 (7th Cir. 2004); Nat’ Home Equity Mortgage Ass’n App. 16 v. Face, supra, 239 FSa at GSPPAS Shinr v: Fnwe .Monrt- gage Servs., Inc., supra, 96 F. Supp. 2d at 424, 426. III. The power of a federal statute to preempt a state law is derived from the Supremacy Clause of the United States Constitution. U.S. Const. art. VI., cl. 2; Fid. Fed. Sav. & Loan Ass’n v. de la Cuesta, 458 U.S. 141, 152, 102 S. Ct. 3014, 3022, 73 L. Ed. 2d 664, 674 (1982). Congress can pass legislation that either explicitly or implicitly pre- empts state law. Id. at 152-53, 102 S. Ct. at 3022, 73 L. Ed. 2d at 675. That Congress intended the Parity Act to have preemptive power over state laws is clear, but less clear is which laws it intended to preempt. OTS, one of the regula- tory agencies responsible for enforcement of the Parity Act, was left to determine the general goals of the Act and to interpret its cryptic language. The regulations of a federal agency are given the same weight and afforded the same presumptions regarding preemption as federal statutes unless the regulations are “arbitrary, capricious, or manifestly contrary to the stat- ute.” Chevron U.S.A., Inc. v. Natural Res. Def. Council, 467 U.S. 837, 844, 104 S. Ct. 2778, 2782, 81 L. Ed. 2d 694, 703 (1984). A federal regulation will have preemptive effect provided the agency intended to preempt state law and acted within the scope of its authority. Fid. Fed., supra, 458 U.S. at 154, 102 S. Ct. at 3023, 73 L. Ed. 2d at 675; Taylor v. First Union Nat'l Bank, 162 N.J. 75, 88 (1999). A court generally must defer to a regulatory agency’s decision, unless the agency acts outside the scope of its authority or arbitrarily. Fid. Fed., supra, 458 U.S. at 153-54, App. 17 LU. FS Mt att 222222 (3° WR? 20’ at’ 675° Uetérence is warranted because the responsibilities for assessing the wisdom of such policy choices and resolving the struggle between competing views of the public interest are not judicial ones, and because of the agencys greater familiarity with the ever- changing facts and circumstances surrounding the subjects regulated. [FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 132, 120 S. Ct 1291, 1300, 146 L. Ed. 2d 121, 134 (2000) (internal quotation marks and citations omitted).] An agency’s statutory interpretation is entitled to deference even when that agency has changed its interpre- tation over time. “An initial agency interpretation is not interpretations and the wisdom of its policy on a continu- ing basis.” Chevron, supra, 467 U.S. at 863-64, 104 S. Ct at 2792, 81 L. Ed. Se at 715-16; see also Motor Vehicle Mfrs. Ass’n of United States v, State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 42, 103 S. Ct 2856, 2866, 77 L. Ed. 2d 443, 457 (1983) (finding that agencies “must be given ample latitude to adapt their rules to the demands of changing circumstances”) (internal quotation marks and citation omitted); Brown & Williamson Tobacco Corp., supra, 529 U.S. at 156-57, 120 S. Ct at 1313, 146 L. Ed. 2d at 149. However, when an agency changes its course, it must provide a “reasoned analysis.” Motor Vehicle Mfrs. Ass’n, supra, 463 U.S. at 57, 103 S. Ct. at 2874, 77 L. Ed. 2d at 466. In those instances in which Congress has not spoken directly to the issue, but “the agency's interpretation is App. 18 reasonable,” we must not reject “an agency’s exercise of its generally conferred authority to resolve a particular statutory ambiguity simply because the agency’s chosen resolution seems unwise.” United States v. Mead Corp., 538 U.S. 218, 229, 121 S. Ct. 2164, 2172, 150 L. Ed. 2d 292, 305 (2001). Although due deference must be given to an agency’s interpretation of a statute in an area over which it has regulatory power, “the final word on statutory interpreta- tion is for the courts.” Grunbeck, supra, 74 F.3d at 341. Therefore, we must decide whether Congress conferred on OTS the authority to preempt states’ prepayment penalty laws as they apply to AMTs. There is no doubt that OTS intended its regulation to preempt states’ prepayment penalty laws. 1996 Final Rule, supra, 61 Fed. Reg. at 50,983. The only issue to be resolved is whether OTS was authorized pursuant to the Parity Act to apply § 560.34, which protected federally-chartered housing lenders from laws forbidding prepayment penalties, to state-chartered housing lenders by its incorporation into 12 C.FR. § 560.220. IV. OTS currently takes the position that allowing the charging of prepayment penalties on an AMT is not intrinsic to the Parity Act’s mandate. However, in 1996, construing parity to mean competitive equality between state and federal housing lenders appeared a sensible interpretation of the language of the Act and a laudable goal. The Appellate Division has concluded that the 1996 version of 12 C.FER. § 560.220 was a mistaken interpreta- tion of the Parity Act based on OTS’s change of course. App. 19 Glukowsky, supra, 360 N.J. Super. at 31-34, 36. Regulatory law, however, is not static. It has elasticity that permits it to adapt to changing circumstances and conditions. In rejecting a challenge to the validity of rules promulgated by the Interstate Commerce Commission, the United States Supreme Court stated: Regulatory agencies do not establish rules of conduct to last forever; they are supposed, within the limits of the law and of fair and prudent ad- ministration, to adapt their rules and practices to the Nation’s needs in a volatile, changing economy. They are neither required nor supposed to regulate the present and the future within the inflexible limits of yesterday. [Am. Trucking Ass’ns, Inc. v. Atchison, Topeka & Santa Fe R. Co., 387 U.S. 397, 416, 87 S. Ct. 1608, 1618, 18 L. Ed. 2d 847, 860 (1967).] See also In re PSE & G Co.’s Rate Unbundling, 167 N.J. 377, 385 (2001) (noting administrative agencies’ ability to be flexible and responsive to changing conditions); Heir v,. Degnan, 82 N.J. 109, 121-22 (1980) (observing advantage of administrative regulations is flexibility to keep pace with current needs). A regulatory agency is charged with the responsibility of adapting its regulations to changing condi- tions when enforcing a statute under its authority. See, e.g., Bob Jones Univ. v. United States, 461 U.S. 574, 596, 103 S. Ct. 2017, 2031, 76 L. Ed. 2d 157, 176 (1983) (acknowledging IRS’s administrative authority “to meet changing conditions and new problems”). In addressing rapidly changing and sometimes difficult to understand market conditions, a regulatory agency may experiment — within the scope of its authority — to meet the pressing needs of the moment. “One of the most significant advantages of the administrative App. 20 process is its ability to adapt to new circumstances in a flexible manner. . . .” FCC v. Nat'l Citizens Comm. for Broad., 436 U.S. 775, 811, 98 S. Ct. 2096, 2120, 56 L. Ed. 2d, 697, 724 (1978). Time and experience have taught OTS that preempt- ing states’ prepayment penalty laws is not essential to the goals of the Parity Act. State-chartered housing lenders that are barred by state law from charging prepayment fees will not necessarily be less profitable. Those lenders can do what lenders have always done — adjust their interest rates to compete in the marketplace. 2002 Notice of Proposed Rulemaking, supra, 67 Fed. Reg. at 20,473. Real-world experience has shown OTS that a regulation that appeared eminently reasonable in 1996 is not neces- sary to achieve the paramount objectives of the Parity Act in 2003. That OTS altered its direction to better effectuate the purposes of the Parity Act does not require the conclu- sion that its 1996 interpretation of that Act was impermis- sible. OTS’s commentary on its 2002 rule change speaks persuasively to that point: In this final rule, OTS has selected between two permissible interpretations of [the Parity Act] based upon a reevaluation of the statute. OTS has, in no way, concluded that the 1996 rule changes reflected an impermissible construction of its statute. Accordingly, there is no basis for arguing that the final rule applies retroactively to transactions consummated before the effective date. [2002 Final Rule, supra, 67 Fed. Reg. at 60,550.] Further, the Appellate Division’s reliance on the 2002 Notice of Proposed Rulemaking to the exclusion of the Final Rule fails to account for the preliminary nature of App. 21 proposed rulemaking. See Dow Chem., USA v. Consumer Prod. Safety Comm’n, 459 F Supp. 378, 391 (W.D. La. 1978) (recognizing informa] rulemaking process as channel for participation by public, experts, and other constituen- cies to provide information on effects of proposed rules and to suggest alternatives). Established principles of adminis- trative law require that a reviewing court defer to an agency's own resolution of a conflict between that agency’s decisions. See Smith v. Brown, 35 F.3d 1516, 1527 (Fed. Cir. 1994), superseded by statute on other grounds stated by Disabled Am. Veterans v. Gober, 234 F'3d 682 (Fed. Cir. 2000), rehearing denied (2001). The Appellate Division accorded greater weight to commentary in the Proposed Rule than to commentary in the Final Rule. Contra Chris- tensen v. Harris County, 529 U.S. 576, 587, 120 S. Ct. 1655, 1662-63, 146 L. Ed. 2d 621, 631 (2000) (declining to accord Chevron deference to informal agency pronounce- ments); Madison v. Res. for Human Dev. Inc., 233 F.3d 175, 185 (3d Cir. 2000) (acknowledging that informal agency interpretations are accorded less deference than regulations). Unless there are compelling indications that OTS is wrong in concluding that there are two permissible inter- pretations of the Parity Act, we should exercise restraint before rushing to invalidate the 1996 regulation. N.J. Guild of Hearing Aid Dispensers v. Long, 75 N.J. 544, 575- 76 (1978); see also Matturri v. Bd. of Trs. of the Judicial Ret. Sys., 173 N.J. 368, 382 (2002). V. In deciding whether OTS exceeded the scope of its authority in promulgating 12 C.FR. § 560.220, we give due App. 22 consideration to the interpretation of the Parity Act by the federal courts. Federal courts uniformly have concluded that the Parity Act allowed federal agencies to promulgate regulations preempting state laws governing prepayment penalties. In Shinn v. Encore Mortgage Services, Inc., supra, 96 F. Supp. 2d at 424, 426, the district court determined that Congress had granted OTS broad authority to regulate state-chartered lenders engaged in AMTs and that the 1996 version of 12 C.FER. § 560.220 preempted New Jerseys Prepayment Penalty Law, N.J.S.A. 46:10B-2, as applied to state-chartered lenders engaged in AMTs. See also Glukowsky, supra, 360 N.J. Super. at 31 (noting same result in unpublished decision of Benay v. Ameriquest Mortgage Co., No. CIVA002173 DMC, 2001 WL 34120911, at (D.N.J. June 29, 2001)). The district court reasoned that the Parity Act did not have the limited purpose of pre- empting only those “state laws, which would completely prohibit or obstruct the creation of AMTs.” Shinn, supra, 96 F Supp. 2d at 425. The court rejected the plaintiffs’ claims that “the sole purpose of the Act is to enable state lenders to engage in AMTs” and instead found that a “paramount purpose of the Act is to create parity between state and federal lenders who engage in AMTs.” Ibid. The court concluded that the regulation reflected “a permissi- ble interpretation of the congressional authority vested in the OTS under the Parity Act.” Ibid. In National Home Equity Mortgage Ass’n v. Face, supra, 239 F.3d at 639-40, the United States Court of Appeals for the Fourth Circuit also endorsed the view that Congress delegated broad authority to OTS to regulate state-chartered housing creditors that elected to have their AMTs governed by the Parity Act. Jd. at 639. The App. 23 court found that in exercising that rulemaking authority, OTS was permitted to preempt not only those state laws that prohibited AMTs, but also those laws that denied state-chartered housing creditors competitive parity with federally-chartered lenders. Jd. at 640. Consequently, the Court of Appeals held that 12 C.FR. § 560.34 as incorpo- rated into 12 CFR. § 560.220 preempted Virginia from enforcing against state lenders its laws limiting prepay- ment penalties involving AMTs. Id. at 635, 640. In McCarthy v. Option One Mortgage Corp., supra, 362 F.3d at 1010-11, the Seventh Circuit Court of Appeals followed the analysis in Face and Shinn to hold that an Illinois law prohibiting prepayment penalties did not apply to an AMT paid off in 2001 under the Parity Act. Notably, McCarthy was decided after the rule change to 12 C.F-R. § 560.220 that eliminated the application of 12 C.F-R. § 560.34 to state-chartered lenders. The court found that the “Parity Act provides equal opportunity for state- chartered lenders to offer alternative mortgages as long as they comply with federal regulations.” Jd. at 1011. The court did not engage in a hindsight assessment of the 1996 version of 12 C.F-R. § 560.220 through the prism of the. 2002 rule change. The court implicitly concluded that the 1996 regulation was a permissible interpretation of the Parity Act. Last, in National Home Equity Mortgage Ass’n v. OTS, 271 F. Supp. 2d 264, 268 (D.D.C. 2003), the plaintiff challenged not the 1996 incarnation of 12 C.FR. § 560.220, but whether the 2002 rule change was a valid expression of the authority delegated to OTS by Congress. In that case, the plaintiff brought suit against OTS, challenging the removal of § 560.34 from 12 CFR. § 560.220, the effect of which was to allow state prepayment penalty laws to App. 24 apply to AMTs. Jd. at 268, 269. The district court held that the 2002 rule change by OTS was entitled to deference. Id. at 275. The court determined that “the text of [the Parity Act] clearly permits OTS to conclude that the Act requires it to identify only those regulations authorizing AMTs, and to define such regulations as those that are ‘essential or intrinsic’ to [a state-chartered lender’s] ability to provide AMTs.” Id. at 273. The district court found that the [sic] “the scope of the [Parity] Act’s preemption is ambiguous,” id. at 272, although suggestive of an intent by Congress “to preempt only those regulations authorizing AMTs,” id. at 271. The court noted that plaintiff’s reading of the statute as requiring preemption of all state laws governing AMTs was “one reasonable interpretation of the Parity Act, [although] it is not expressly required by the plain language of the Act, nor is it the only reasonable interpre- tation of the [the Parity Act’s] terms.” Ibid. Therefore, inferentially, OTS’s 1996 adoption of 12 C.FR. § 560.220 was a reasonable interpretation of the Act. Those federal court decisions, while not binding on New Jersey courts, are entitled to respectful consideration in the interests of judicial comity. Judicial comity helps to ensure uniformity and discourage forum shopping. Dewey, supra, 121 N.J. at 80. Finally, because OTS is the administrative agency charged with enforcement of the Parity Act, its opinion is entitled to great weight and is a substantial factor in our interpretation of the Act. N.J. Guild, supra, 75 N.J. at 575 (quoting Youakim v. Miller, 425 U.S. 231, 235, 96 S. Ct. 1399, 1402, 47 L. Ed. 2d 701, 706 (1976)). We cannot conclude, based on the language of the Parity Act or its legislative history, that Congress would not have sanc- tioned OTS’s interpretation of the Act. See Fid. Fed., App. 25 supra, 458 U.S. at 153-54, 102 S. Ct at 3022, 73 L. Ed. 2d at 675 (citing United States v. Shimer, 367 U.S. 374, 381- 82, 81 S. Ct. 1554, 1559-60, 6 L. Ed. 2d 908, 913-14 (1961)). Although the Appellate Division’s view represents one reasonable interpretation of the authority granted to OTS under the statute, we find that it is not the only reasonable interpretation. We, therefore, cannot declare invalid OTS’s decision to adopt the 1996 regulation. VI. This case has brought to our attention a gap in our court rules. Rule 4:28-4(a) requires a party challenging the validity of a State statute, rule, regulation, executive order or franchise in a legal action to give notice of the challenge to the Attorney General. Rule 2:5-1(h) requires that notice to the Attorney General be provided when such a chal- lenge is raised on appeal. However, we have no compara- ble rule requiring that notice be given to the attorney or chief legal officer of a federal department or agency when its laws or regulations are challenged in our courts. We, therefore, submit_to the Civil Rules Practice Committee consideration of an appropriate revision to our rules that will require notice to be given to the appropriate federal officer and agency when a federal law or regulation is challenged in a New Jersey court. VII. We hold that the New Jersey Prepayment Law was preempted by the 1996 version of 12 CFR. § 560.220. Accordingly, we reverse the decision of the Appellate Division, and reinstate the decision of the trial court App. 26 dismissing plaintiff’s complaint for failure to state a claim upon which relief can be granted.” CHIEF JUSTICE PORITZ and JUSTICES LONG, and LaVECCHIA join in JUSTICE ALBIN’s opinion. JUSTICE ZAZZALI filed a separate dissenting opinion in which JUSTICES VERNIERO and WALLACE join. JUSTICE ZAZZALI, dissenting. The majority opinion represents a principled treat- ment of a complex problem. However, I do not believe that the preemption doctrine applies. Therefore, I respectfully dissent. I would affirm the judgment of the Appellate Division substantially for the reasons expressed by Judge King in his comprehensive and well-reasoned opinion. Glukowsky v. Equity One, Inc., 360 N.J. Super. 1 (2003). I write further only to underscore the point that affording lenders protection under the 1996 regulation, which by now has been universally recognized as mis- guided, becomes especially unjust when viewed in conjunc- tion with the sequence of events relating to the “opt-out” mechanism provided by Congress when it enacted the underlying legislation. Ante at at (slip op. at 9). In passing the Parity Act, Congress afforded each state three years to assert its right not to be preempted by the federal regulatory scheme. 12 U.S.C.A. § 3804. Con- gress enacted the law including that provision in 1982, * Although our dissenting colleagues observe that “plaintiff might yet find relief by alleging a violation of 12 C.FR. § 591.5(b)(2)\i),” we express no view on the validity of the filing of any new complaint. App. 27 some fourteen years before the suspect 1996 regulation was promulgated. Ante at ___ (slip op. at 9). During the three-year window from 1982 to 1985, neither the New Jersey Legislature nor that of any other state could predict that the OTS, or any other regulatory agency, someday would turn the salutary congressional goal of ensuring the availability of alternative mortgages on its head by sanc- tioning what arguably amount to predatory lending practices by state-chartered institutions. As explained by Judge King, the countenance of those practices, by the federal regulators’ own admission, finds no support in the intent manifested by Congress when it enacted the Parity Act. Glukowsky, supra, 360 N.J. Super. at 32-34. That such an ultra vires regulation came into being only after the states were no longer free to exempt themselves com- pounds the injustice of allowing such lending practices the safe-haven accorded by preemption in these circum- stances. Finally, by virtue of the rule that a dismissal under Rule 4:6-2(e) is presumptively without prejudice, Printing Mart-Morristown v. Sharp Electronics Corp., 116 N.J. 739, 772 (1989), plaintiff might yet find relief by alleging a violation of 12 CFR. 591.5(b)\(2)(i). As the Appellate Division noted, that regulation prevents lenders from collecting prepayment penalties when they have de- manded full payment under a due-on-sale clause. Glu- kowsky, supra, 360 N.J. Super. at 23-24. Justice Verniero and Justice Wallace join in this opinion. App. 28 SUPREME COURT OF NEW JERSEY C-746 September Term 2003 55,729 VICTOR and ELAINE YURITCH, Plaintiffs-Respondents, v. ON PETITION FOR COUNTRYWIDE HOME LOANS, CERTIFICATION INC., D/B/A AMERICA’S (Filed Jul. 12, 2004) WHOLESALE LENDER, A FOREIGN CORPORATION, - Defendant-Petitioner. To the Appellate Division, Superior Court: A petition for certification of the judgment in A-2850- 02 having been submitted to this Court, and the Court having considered the same; It is ORDERED that the petition for certification is granted, the judgment of the Appellate Division is summa- rily reversed, and the order of the Superior Court, Law Division, Camden County, (L-5030-02) is reinstated. See Glukowsky v. Equity One, Inc., __. N.J. ___ (decided May 26, 2004). WITNESS, the Honorable Deborah T. Poritz, Chief Justice, at Trenton, this 8th day of July, 2004. /s/ Stephen Townsend CLERK OF THE SUPREME COURT App. 29 NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELALTE DIVISION SUEPRIOR COURT OF NEW JERSEY APPELLATE DIVISION DOCKET NO. A-3202-01T3 MARK GLUKOWSKY, Plaintiff-Appellant, v. (Filed Apr. 24, 2003) EQUITY ONE, INC., Defendant-Respondent. Submitted: February 5, 2003 Decided: APR 24, 2003 Before Judges King, Wefing and Lisa. On appeal from the Superior Court of New Jer- sey, Law Division, Gloucester County, L-872-01. Lewis G. Adler, attorney for appellant (Mr. Adler, Roger C. Mattson and Louis D. Fletcher, on the brief). Reed Smith, attorneys for respondent (Lauren Graham, Delehey, of counsel; Leonard A. Bern- stein, Robert M. Jaworski and Ms. Delehey, on the brief). The opinion of the court was delivered by KING, P.J.A.D. This case presents a question of federal preemption of state law respecting prepayment fees for residential af App. 30 mortgages. We find no federal preemption, revérse and remand for further proceedings. I In 1999, plaintiff secured a residential mortgage from defendant in the amount of $72,000. This was a so-called “balloon loan,” meaning that the debt matures at the end of an interval shorter than the terms of the amortization schedule. At the maturity date, in 2009, plaintiff would still owe $62,021.25. This is considered an alternative mortgage transaction (AMT) under federal law. AMTs are all residential mortgages other than traditional, fixed- term, fixed-rate mortgages. In 2001, plaintiff sold the mortgaged property. At that time, plaintiff prepaid the remaining loan balance plus a prepayment fee amounting to two percent of the principal balance of the loan ($1,427.97). The prepayment fee was calculated under the terms of a “Prepayment Rider” to the mortgage contract. Plaintiff then filed suit alleging that prepayment fees, regardless of their amount, violate New Jersey law, relying upon the Prepayment Law, N.J.S.A. 46:10B-1 to -11.1; the Market Rate Consumer Loan Act, N.J.S.A. 17:3B-4 to -27; and the Consumer Fraud Act, N.J.S.A. 56:8-1 to -2.13. Upon defendant’s motion, the Law Division judge dis- missed the complaint, under R. 4:6-2(e), for failure to state a claim upon which relief can be granted, holding that the state law claims were preempted by federal law. The questions presented on this appeal are: (1) whether the complaint states a claim for which relief may be granted under New Jersey law, and (2) whether any App. 31 valid state law claims nevertheless must be dismissed because they are preempted by federal law. Plaintiff also contends that he should be permitted to amend the complaint to assert claims under: (1) a federal due-on-sale regulation, 12 C.FR. § 591.5(b)(2)(i), which prohibits housing lenders from collecting prepayment fees where they have demanded prepayment of the mortgage under the mortgage contract’s due-on-sale clause (A due- on-sale clause is “a contractual provision that permits the lender to declare the entire balance of a loan immediately due and payable if the property securing the loan is sold or otherwise transferred.” Fid. Fed. Sav. and Loan Ass’n v. de la Cuesta, 458 U.S. 141, 145, 102 S. Ct. 3014, 3018, 73 L. Ed. 2d 664, 670 (1982)); (2) the Licensed Lenders Act, N.J.S.A. 17:11C-1 to -49, and one of the regulations adopted thereunder, N.J.A.C. 3:15-10.1, which prohibits prépayment fees; and (3) general contract law principles which prohibit unconscionable contract terms, such as the Prepayment Rider to the mortgage contract. Plaintiff does not explicitly request permission to amend the complaint to assert these claims. Instead, he argues as though these claims are pled in the complaint. Since they clearly are not, we treat plaintiff’s arguments as requests for permis- sion to amend the complaint. As to the preemption issue, the central issue on appeal, there clearly exists a direct conflict between state and federal law regarding whether prepayment penalties may be charged in alternative mortgage transactions. New Jersey explicitly prohibits state-chartered housing creditors from collecting prepayment penalties, with respect to any residen- tial mortgage transaction. See N.J.S.A. 46:10B-2. On the other hand, a 1996 federal regulation, issued by the Office of Thrift Supervision (OTS), permits state-chartered housing va a App. 32 creditors to charge prepayment fees in alternative mortgage transactions. See 12 C.F-R. § 560.220 (incorporating 12 C.F-R. § 560.34, which permits federally chartered housing creditors to collect prepayment penalties, and applying it to state- chartered housing creditors with respect to AMTs). The OTS adopted 12 C.F-R. § 560.220 pursuant to authority delegated to it by Congress, under the Alternative Mortgage Transac- tions Parity Act (Parity Act), 12 U.S.C_A. § 3801 to § 3806. Furthermore, in adopting 12 C.FR. § 560.220, the OTS expressly stated that this regulation was intended to pre- empt state law to the contrary. Thus, we must hold that 12 C.F-R. § 560.220 preempts plaintiff’s state law claims challenging the prepayment fee unless we find that in issuing this regulation the OTS acted arbitrarily, or exceeded the authority delegated to it by Congress. This is the nub of the preemption issue. Plaintiff contends that 12 C.FR. § 560.220 is invalid because, in issuing it, the OTS exceeded the authority delegated to it by Congress under the Parity Act. We agree. In finding federal preemption, and dismissing the complaint, the Law Division judge primarily relied upon two published federal court decisions in which the courts held that 12 C.E-R. § 560.220 was a valid exercise of the OTS’s delegated authority, and that 12 CER. § 560.220 preempted state laws regulating prepayment fees — at least to the extent those state laws are applied in the context of alternative mortgage transactions. See Nat'l Home Equity Mortgage Ass’n v. Face (Face) 239 F:3d 633 (4th Cir.), cert. denied, 534 U.S. 823, 122 S. Ct. 58, 151 L. Ed. 2d 26 (2001); Shinn v. Encore Mortgage Serv., Inc., 96 F. Supp. 2d 419, 422 (D.N.J. 2000). App. 33 Since the Law Division judge entered judgment, however, there has been a significant, albeit unusual, development, which casts doubt on these federal decisions and subjects them to closer scrutiny. Specifically, in April 2002, the OTS published a Notice of Proposed Rulemaking in which it repudiated 12 C.FR. § 560.220 and put forth a number of arguments which support a conclusion that, in adopting 12 CFR. § 560.220 in 1996, the OTS acted arbitrarily and exceeded the authority delegated to it by Congress. Alternative Mortgage Transaction Parity Act; Preemption, 67 Fed. Reg. 20,468 (Apr. 25, 2002). Subse- quently, the OTS adopted that Proposed Rulemaking as final. Alternative Mortgage Transaction Parity Act; Pre- emption, 67 Fed. Reg., 60,542 (Sept. 26, 2002). We agree with the arguments advanced by the OTS and find they are supported by a recent case from the California Court of Appeals, in which that court discussed the limited nature of the Parity Act’s preemption clause, although in a con- text different than presented in this case. See Black v. Fin. Freedom Senior Funding Corp., 112 Cal. Rptr. 2d 445, 457 (Cal. Ct. App. 2001), cert. denied sub nom., ULLICO, Inc. v. Black, __ U.S. __, 122 S. Ct. 2662, 153 L. Ed. 2d 837 (2002). We reverse the rulings of the Law Division judge, in part. We hold that plaintiff’s state law claims are not preempted by 12 C.FR. § 560.220 because this regulation was adopted arbitrarily, and exceeds the scope of authority Congress delegated to the OTS under the Parity Act. We remand for further proceedings on plaintiff’s claims under the Prepayment Law and the Consumer Fraud Act. We affirm dismissal of plaintiff’s claim under the Market Rate Consumer Loan Act because defendant is not an entity covered by this statute. Finally on remand, plaintiff | aa a site as deal st derhehaeae de App. 34 is permitted to amend the complaint to assert claims under the federal due-on-sale regulation, 12 C.FR. § 591.5(e)(2)(i); N.J.A.C. 3:15-10.1(b) and general contract principles; defendant may raise the issue of retroactivity. II This is the procedural context. On May 17, 2002 plaintiff filed a complaint alleging that in collecting a prepayment fee with respect to the prepayment of his mortgage defendant violated New Jerseys Prepayment Law, N.J.S.A. 46:10B-2, and the Market Rate Consumer Loan Act, N.J.S.A. 17:3B-22. Plaintiff also alleged that collection of a prepayment fee constituted an unconscion- able business practice, in violation of the Consumer Fraud Act, N.J.S.A. 56:8-2. Plaintiff also sought class certifica- tion. In lieu of an answer, defendant filed a motion to dismiss, under R. 4:6-2, for failure to state a claim upon which relief may be granted. Plaintiff opposed that motion, and filed a cross-motion for summary judgment, which defendants opposed. After hearing oral argument on January 18, 2002 the judge issued an oral decision, grant- ing defendant’s motion, and denying plaintiff’s cross- motion. III Defendant is a Delaware corporation, which main- tains an office in Mount Laurel, Burlington County. Defendant is licensed under New Jersey’s Licensed Lend- ers Act and engages in the business of residential mort- gage lending. App. 35 On October 29, 1999 plaintiff and a co-borrower financed the purchase of a residence, located at 133-135 Route 530 (Pemberton Road), Southampton, Burlington County, with a mortgage loan secured from defendant. The total amount of the mortgage was $72,000, and the matur- ity date was November 1, 2009. The mortgage contract provided for federal and New Jersey law to control the transaction. The mortgage is considered a “balloon loan.” At maturity, plaintiff would still owe $62,021.25 of the princi- pal and would be obligated to repay that entire amount, or obtain refinancing from defendant or another mortgage lender. Under the terms of the mortgage, defendant reserved the right not to refinance the loan. Of particular relevance to this case is the Prepayment Rider to the mortgage’s “Balloon Note.” The Prepayment Rider imposes a prepayment fee if the mortgage is prepaid in full during the first three years of the loan term. Spe- cifically, the Prepayment Rider states: 4. BORROWER’S RIGHT TO REPAY I have the right to make payments of principal at any time before they are due. A payment of prin- cipal only is known as a “prepayment.” When I make a prepayment, I will tell the Note Holder in writing that I am doing so. I may make a partial prepayment without paying the prepayment charge. If I make a full prepay- ment within one (1) year of the date of this Note, I agree to pay a prepayment charge of 3.0000% of the amount being prepaid; If I make a full pre- payment more than one (1) year but within two (2) years of the date of this Note, I agree to pay a pre- payment charge of 2.0000% of the amount being App. 36 prepaid; if I make a full prepayment more than two (2) years but within three (3) years of the date of this Note, I agree to pay a prepayment charge of 1.0000% of the amount being prepaid. If I make full prepayment more than three (3) years after the date of this Note, there will be no pre- payment charge. The Note Holder will use all of my prepayments to reduce the amount of princi- pal that I owe under this Note. If I make a par- tial prepayment, there will be no changes in the due date or in the amount of my monthly pay- ment unless the Note Holder agrees in writing to those changes. My partial prepayment may re- duce the amount of my monthly payments after the first Change Date following my partial pre- payment. However, any reduction due to my par- tial prepayment may be offset by an interest rate increase. {(emphasis added).] The Prepayment Rider amended language in the “Balloon Note,” under which no prepayment penalties could be imposed. Also relevant is Section 17 of the mortgage contract, the so-called due-on-sale clause, which states, in pertinent part, as follows: 17. Transfer of the Property or a Benefi- cial Interest in Borrower. If all or any part of the Property or any interest in it is sold or trans- ferred ... without Lender’s prior written con- sent, Lender may, at its option, require immediate payment in full of all sums secured by this Security Instrument. However, this option shall not be exercised by Lender if exercise is prohibited by federal law as of the date of this Security Instrument. App. 37 If Lender exercises this option, Lender shall give Borrower notice of acceleration. The notice shall provide a period of not less than 30 days from the date the notice is delivered or mailed within which Borrower must pay all sums secured by this Security Instrument. If Borrower fails to pay these sums prior to the expiration of this period, Lender may invoke any remedies permitted by this Security Instrument without further notice or demand on Borrower. On or about April 11, 2001 defendant provided a payoff statement to plaintiff, stating that the mortgage was in default and if not brought current, could be re- ferred to an attorney for foreclosure. The Payoff Statement reflected the amount needed to prepay the mortgage in full, which included the remaining principal balance, interest, various fees and late charges, plus a prepayment fee of $1,427.97. Plaintiff sold the property, and on April 19, 2001 paid the amount indicated in the Payoff State- ment, including the prepayment fee. SUMMARY OF APPLICABLE LAW This case involves a spider’s web of federal and state statutes and regulations governing mortgage transactions. To complicate things, the parties dispute which statutes and regulations actually apply in the context of this case. We provide summaries of the statutes and regulations at issue in this case. We also summarily resolve some of the parties’ more specious arguments, regarding the applicability of the various statutes and regulations, in our attempt to narrow the issues presented. App. 38 State Statutes and Regulations The complaint alleges violations of three New Jersey statutes: (1) the Prepayment Law; (2) the Market Rate Consumer Loan Act; and (3) the Consumer Fraud Act. On appeal, plaintiff also essentially requests permission to amend the complaint, to assert a claim under the New Jersey Licensed Lenders Act, N.J.S.A. 17:11C-1 to -49, and N.J.A.C. 3:15-10.1, a regulation adopted under N.J.S.A. 17:11C-49. The Prepayment Law New Jerseys Prepayment Law provides _ that “[p]repayment of a mortgage loan may be made by or on behalf of a mortgagor at any time without penalty.” N.J.S.A. 46:10B-2. The statute defines “prepayment” as “payment in full of the balance owing on a mortgage loan at any time prior to the time limited for the final payment of such loan in an instrument evidencing such loan.” N.J.S.A. 46:10B-1(c). The Prepayment Law also provides for a limited right to make partial prepayments of mortgage principal, without incurring a prepayment fee. Specifically, N.J.S.A. 46:10B-3 provides as follows: A mortgagor shall have the right, during any 6 month period beginning with the date of the mortgage loan, to pay, without charge or penalty, an additional sum of $50.00, or multiples thereof, on account of the principal amount owing on a mortgage loan, provided that the additional sums so paid and the principal payments required to be made by the terms of such mortgage loan dur- ing such 6 month period do not together exceed in any such 6 month period 33-1/3% of the face App. 39 amount of such mortgage loan. The right to make additional payments as provided by this section shall not be cumulative, and to the extent that it is not exercised during any 6 month period, shall lapse. In addition, the Prepayment Law provides that no provision of a mortgage which denies the rights conferred by the above sections [N.J.S.A. 46:10B-2 and NWJ.S.A. 46:10B-3] shall be enforceable, N.J.S.A. 46:10B-4, and that any prepayment fees collected in knowing violation of the statute must be repaid, with interest calculated at six percent per annum. N.J.S.A. 46:10B-5. Finally, the Prepayment Law provides that: This act shall not apply to loans secured by a mortgage on real property the prepayment of which is governed by any other statute of this State or of the United States, nor shall it apply to any loans, secured by mortgage on real property, made pursuant to any statute of this State or of the United States expressly authorizing interest charges in excess of 6% per annum. [N.J.S.A. 46:10B-9.] The Market Rate Consumer Loan Act As its name implies, the Market Rate Consumer Loan Act regulates consumer loan transactions. N.J.S.A. 17:3B- 4 to -27. It applies to loans offered by “lenders,” with “lenders” defined as: (1) “banking institutions” (defined as banks, out-of-state or out-of-country banks having a branch office in New Jersey, savings banks, and national banking associations having a principal or a branch office in New Jersey); (2) federally chartered savings banks; and eee ee ER ee ee A Le eae aT Te Sanit Eee Gate Bee aa App. 40 (3) “associations” (defined as state associations, federal associations having a principal or a branch office in New Jersey, and out-of-state associations having a branch office in New Jersey). N.J.S.A. 17:3B-5(d); N.J.S.A. 17:9A-1(2); N.J.S.A. 17:12B-5(3). The Market Rate Consumer Loan Act prohibits lenders, as defined above, from charging prepayment fees, as follows: a. An individual borrower may prepay a loan in full at any time without payment of any prepay- ment charge. b. If a borrower wishes to prepay a loan, a lender shall not use the “rule of 78’s” to calculate the amount of interest owed by the borrower. The lender shall use a simple interest basis to calcu- late the amount of interest owed by the borrower. [N.J.S.A. 17:3B-22.] Consumer Fraud Act The Consumer Fraud Act prohibits “unconscionable commercial practices.” N.J.S.A. 56:8-2. It also provides for a private right of action, to recover monies lost as a result of such practices, N.J.S.A. 56:8-2.12, and states that the rights protected under the Act are cumulative of other rights and remedies under New Jersey law. N.J.S.A. 56:8- 2.13. New Jersey Licensed Lenders Act Defendant is licensed as, among other things, a “mortgage banker,” under the New Jersey Licensed Lend- ers Act (Licensed Lenders Act). N.J.S.A. 17:11C-1 to -49. A App. 41 regulation adopted, in part, under the Licensed Lenders Act, N.J.S.A. 17:11C-49, provides that: “[a] borrower may repay a first mortgage loan, second mortgage loan or consumer loan at any time without penalty.” N.J.A.C. 3:15-10.1(b). See also N.J.A.C., Title 3, Ch. 15, References and Annotations. Federal Statutes and Regulations The Parity Act The only federal law of significance to this litigation is: (1) the Parity Act, 12 U.S.C.A. § 3801 to § 3806, which was adopted in 1982; and (2) a regulation adopted by the OTS, under the Parity Act, in 1996, 12 C_FR. § 560.220. It is 12 C.FR. § 560.220 which allegedly preempts plaintiff’s state law claims. Purpose of the Parity Act Prior to passage of the Parity Act, federal regulations permitted federally chartered housing lenders to engage in AMTs. Many states, however, prohibited state-chartered housing lenders (also referred to as “non-federally char- tered housing lenders”) from engaging in AMTs. Shinn, 96 F. Supp. at 422. The purpose of the Parity Act was to provide parity between federally chartered and state-chartered housing lenders, “by authorizing all housing creditors to make, purchase and enforce alternative mortgage transactions so long as the transactions are in conformity with the regula- tions issued” by the relevant federal agencies. 12 U.S.C.A. § 3801(b) (emphasis added). The relevant federal agencies, issuing regulations under the Parity Act, are: (1) the Comp- troller of the Currency, which issues regulations applicable to App. 42 national banks; (2) the National Credit Union Administra- tion, which issues regulations applicable to national credit unions; and (3) the OTS, which issues regulations applicable to all other housing creditors, for example, savings and loan associations, mutual savings banks, and savings banks. 12 U.S.C.A. § 3801(a)(3), § 3803(a). Shinn, 96 F Supp. 2d at 422- 23. (As originally worded, the Parity Act referenced the “Federal Home Loan Bank Board,” (FHLBB), which is the predecessor to the OTS). Glass v. United States, 258 F.3d 1349, 1352, n.3, as amended by, 273 F.3d 1072 (Fed. Cir. 2001); Turner v. First Union Natl Bank, 162 N.J. 75, 87, n.2 (1999). Congress passed the Parity Act in 1982 in response to “increasingly volatile and dynamic changes in interest rates,” which Congress found “seriously impaired the ability of housing creditors to provide consumers” with traditional residential mortgages. 12 U.S.C.A. § 3801(a)(1). The Act represented the congressional response to a concern that state bans on AMTs “would reduce the overall availability of mortgage credit, since fixed-rate mortgages had become relatively more expensive as the result of increased interest-rate volatility.” Grunbeck v. Dime Sav. Bank of New York, FSB, 74 F.3d 331, 343 (1st Cir. 1996). Congress believed that AMTs were “essential to the provi- sion of an adequate supply of credit secured by residential property necessary to meet the demand expected during the 1980's.” 12 U.S.C.A. § 3801(a)(2). Definitional Provisions The Parity Act defines AMTs as follows: (1) the term “alternative mortgage transaction” means a loan or credit sale secured by an inter- est in residential real property, a dwelling, all App. 43 stock allocated to a dwelling unit in a residential cooperative housing corporation, or a residential manufactured home... (A) in which the interest rate or fi- nance charge may be adjusted or rene- gotiated; (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 com- mon to traditional fixed-rate, fixed-term transactions, including without limita- tion, transactions that involve the shar- ing of equity or appreciation; [12 U.S.C.A. § 3802(1).] The term AMT “is a broad catch-all term for all manner of mortgage instruments that do not conform to the tradi- tional fully-amortized, fixed-interest-rate mortgage loan.” First Gibraltar Bank, FSB v. Morales, 19 F.3d 1032, 1037 (5th Cir.), cert. denied, 513 U.S. 876, 115 S. Ct. 204, 130 L. Ed.2d 134 (1994), vacated on other grounds, 42 F.3d 895 (5th Cir. 1995). Although plaintiff disputes this fact, it is clear that the mortgage at issue in the present case qualifies as an AMT under 12 U.S.C.A. § 3802(1)(B) or (C). Specifically, although it is a fixed-rate, fixed-term mortgage, the debt matures at the end of an interval shorter than the term of the amortization schedule, thereby implicitly permitting rate adjustments under 12 U.S.C.A. § 3802(1)(B). hom Ce ee eee fo App. 44 The niorguge daw wuiasitetes % hydloson'nw., wiinhs' fs not the traditional, fixed-rate, fixed-term mortgage. 12 U.S.C.A. § 3802(1)(C). Plaintiff’s contention that the mortgage at issue is not a balloon note is incorrect. Black’s Law Dictionary (6th ed. 1991) defines “balloon note” as “[a] form of promissory note which commonly calls for mini- mum payments of principal, if any, and the payment of interest at regular intervals, but which requires a sub- stantial payment of principal at the end of the term; the final payment frequently representing all the principal.” The mortgage at issue clearly fits this definition. There is also no real dispute that defendant is a “housing creditor,” as defined by the Parity Act, 12 U.S.C.A. § 3802(2), since defendant is engaged in the business [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386003_1349%3A1. Public record. Not legal advice.