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Changes to the Truth in Lending Act Require Mortgage Agreements to Drop Mandatory Arbitration Clauses

Wednesday, June, 12, 2013


In an effort to protect consumers’ right to a trial by jury, particularly for cases in which a Federal law has been broken during the transaction, the consistent and widespread use of mandatory arbitration clauses in consumer mortgage and home equity loan contracts has now been prohibited by the Consumer Financial Protection Bureau.  As of June 1, 2013, the Truth in Lending Act will reflect these amendments with new language, showing:

(h) Prohibition on mandatory arbitration clauses and waivers of certain consumer rights.

(1) Arbitration. A contract or other agreement for a consumer credit transaction secured by a dwelling (including a home equity line of credit secured by the consumer's principal dwelling) may not include terms that require arbitration or any other non-judicial procedure to resolve any controversy or settle any claims arising out of the transaction. This prohibition does not limit a consumer and creditor or any assignee from agreeing, after a dispute or claim under the transaction arises, to settle or use arbitration or other non-judicial procedure to resolve that dispute or claim.

The amendments will also cover a prohibition of waivers on Federal statutory causes of action.  According to the new language, a consumer credit transaction that is secured for the primary residence of a consumer may not include an agreement that bars the consumer’s right to pursue a claim in court if there has been an alleged violation of Federal law in the transaction. 

The Consumer Financial Protection Bureau suggests that all existing forms for mortgage agreements and loan terms be reviewed to ensure that the new provisions are met.