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Credit Discrimination: 11.5.3.2.2 Limits on arbitration where credit extended to active duty military or their dependents

The Military Lending Act (MLA) prohibits arbitration clauses in consumer credit agreements with military personnel or their dependents or the enforcement of such a consumer credit agreement.203 An arbitration requirement is unenforceable even after the consumer is no longer a servicemember or a dependent of a servicemember so long as the consumer was covered by the MLA when the credit was originated.204

Credit Discrimination: 11.5.3.4 Arbitration Agreements Are Subject to All Standard Contract Defenses

An arbitration agreement is a contract and, like any other contract, is subject to standard contract defenses—for example, that the contract was not consummated, not properly formed, not applicable to the parties, superseded by another contract, unconscionable, or not enforceable according to its terms. For example, if a creditor’s standard form contract includes an arbitration clause, that clause should not apply to an applicant who was denied credit and who never entered into that contract.

Credit Discrimination: 11.5.3.5.1 General

Arbitration clauses can be challenged as either unconscionable or preventing vindication of federal statutory rights. When the consumer’s claim is pursuant to a federal statute, an arbitration clause can often be challenged under both theories. For example, an arbitration agreement that limits the right to punitive damages can be unconscionable and interfere with a consumer’s rights under the ECOA.

Credit Discrimination: 11.5.3.5.3 Limits on consumer’s recovery of attorney fees and costs; high arbitration fees

Essential to the ECOA and FHA regulatory scheme is the authority for courts to award attorney fees to a prevailing consumer, but not to a prevailing creditor. This statutory provision, more than any other, makes enforcement of the statute practical. It also deters creditors from improperly contesting meritorious claims. Otherwise, creditors with deep legal pockets could overwhelm any attempt by a consumer to press an action.261

Credit Discrimination: 11.5.3.7 Classwide Arbitration

Although becoming less common, consumers in certain cases can still bring an arbitration case on a classwide basis. That option, if available, has a profound impact on the litigation because creditors typically fear classwide arbitration more than a court-based class action. The arbitration can proceed much faster than a court-based class action, with virtually no judicial review, and the arbitrator, being paid by the hour, may not view a complicated case with as much disfavor as a judge with an overwhelmingly large caseload.

Credit Discrimination: 11.5.3.8 Individual Arbitration Proceeding

Where an enforceable arbitration agreement forecloses class arbitration, class court litigation, and individual court litigation, adequate client representation may require raising the consumer’s claims in an individual arbitration proceeding. While this is not preferred, consumers may achieve good results under some circumstances, particularly if the selected arbitrator has an open mind on consumer claims.

Credit Discrimination: 11.6.1.1 General

Plaintiffs in credit discrimination cases may have claims under the Equal Credit Opportunity Act (ECOA), the Fair Housing Act (FHA), certain civil rights statutes (42 U.S.C. § 1981 and 42 U.S.C. § 1982), state credit discrimination statutes, and state statutes that prohibit unfair or deceptive practices (UDAP statutes). With certain important exceptions detailed below, the best strategy is often to plead as many causes of action as are viable.

Credit Discrimination: 11.6.2 What Causes of Action May Be Brought in the Same Lawsuit?

The Equal Credit Opportunity Act (ECOA), federal Fair Housing Act (FHA), federal Civil Rights Acts, and state anti-discrimination laws all provide remedies for illegal discrimination. Aggrieved individuals can recover their actual damages only once, but issues sometimes arise as to whether an individual can seek punitive damages under different statutes or minimum or multiple damages under a state statute and punitive damages under a federal one.

Credit Discrimination: 11.7 Discovery Issues

A defendant in a disparate impact case may attempt to shift the focus to the individual transactions made by the named plaintiffs. In furtherance of this effort, it may seek information related to their creditworthiness, financial acumen, or the purpose of the transaction.

Credit Discrimination: 11.8.1 Overview

The various federal statutes that prohibit credit discrimination provide similar remedial schemes.332 They all provide for actual and punitive damages, equitable relief, and attorney fees for successful claims. None of the federal statutes provide statutory damages.

Credit Discrimination: 11.8.2.1 General

It should not be necessary for a plaintiff to establish actual damages in order to take advantage of other possible statutory remedies, such as punitive damages, equitable and declaratory relief, and attorney fees.342 There are, however, other sound reasons for establishing the existence of actual damages.

Credit Discrimination: 11.8.2.2 Tangible Injury

Actual, out-of-pocket expenses and other tangible injuries are recoverable as actual damages under the ECOA, the federal FHA, the federal Civil Rights Acts, and state credit discrimination statutes.347 These damages can arise in a number of ways. The following should be explored with the consumer:

Credit Discrimination: 11.8.4.1 General

Punitive damages are available under the Equal Credit Opportunity Act (ECOA), the Fair Housing Act (FHA), and the federal Civil Rights Acts. While some courts are reluctant to award such damages, others are not. A plaintiff’s settlement posture and trial prospects are both enhanced if punitive damages may be warranted.

Credit Discrimination: 11.8.4.3.1 Generally

The Equal Credit Opportunity Act (ECOA) contains language that appears to mandate an award of punitive damages. A non-complying creditor “shall be liable . . . for punitive damages in an amount not greater than $10,000 in addition to any actual damages” awarded.396 The one statutory exception is that no punitive damages are available in actions brought against a creditor that is a government or a governmental subdivision, agency, or instrumentality.397