Consumer Arbitration Agreements: 8.8.2.2.3 The number or degree of unenforceable terms in the agreement
The number or degree of unfair or illegal terms in an agreement is another factor in deciding whether to sever.
The number or degree of unfair or illegal terms in an agreement is another factor in deciding whether to sever.
Many potential claims related to mortgage servicing or wrongful foreclosure are based on state statutory or common law, so the question of whether some federal law preempts these claims is important. This section provides an overview of preemption of state servicing and foreclosure laws by the National Bank Act (NBA), the Home Owners’ Loan Act (HOLA), the Federal Credit Union Act (FCUA), and regulations promulgated under those statutes.
The Dodd-Frank Act rolls back much of this preemption of state consumer laws and sets higher standards for future preemption.942 In addition, Congress created a federal requirement that creditors pay interest on escrow accounts established in closed-end consumer credit transactions secured by a first lien on the consumer’s principal dwelling if prescribed by state or federal law.943 Relying on this provision, the Ninth Circuit ruled that a state statute requiring the payment of interest was not
Many potential claims related to mortgage servicing or wrongful foreclosure are based on state statutory or common law, so the question of whether some federal law preempts these claims is important. This section provides an overview of preemption of state servicing and foreclosure laws by the National Bank Act (NBA), the Home Owners’ Loan Act (HOLA), the Federal Credit Union Act (FCUA), and regulations promulgated under those statutes.
Most states have laws such as retail installment sales acts, consumer leasing acts and banking laws that regulate credit transactions. These laws often require disclosures, prohibit certain terms and practices, and cap interest rates and late charges.150
The standard automated data reporting format created by the credit reporting industry, known as Metro 2,75 refers to the date of commencement of the obsolescence period as the “Date of First Delinquency.” This is the same date which the FCRA requires furnishers to provide in order to establish the start of the obsolescence period.76 The Metro 2 Manual contains several discussions of how to calculate this date.77
As a general rule, any adverse item (other than criminal conviction records and the five types of information specifically listed in the statute) cannot antedate the report by more than seven years.101 This rule applies to information about delinquent loans other than those placed for collection or charged to profit and loss.102
Records of arrest (apart from the criminal conviction) are treated like civil suits and judgments.222 They may be reported for seven years or until the governing statute of limitations expires, whichever is longer. The date that the seven-year period runs is the day of arrest.223 It is not clear what is meant by the statute of limitations in connection with an arrest.
The final prohibition applicable to any person states that no person may “engage, directly or indirectly, in any act, practice, or course of business that constitutes or results in the commission of, or an attempt to commit, a fraud or deception on any person in connection with the offer or sale of the services of a credit repair organization.”251 One court, inexplicably ignoring the reference to deception, held that the reference to fraud meant that the consumer must show reliance and damages.
[Editor’s Note: this subsection has been deleted.]
Article III, section 2 of the United States Constitution limits the judicial power of federal courts to cases and controversies. Article III standing, when seeking statutory damages under a federal consumer protection statute like CROA, has become an important issue since the Supreme Court’s 2016 decision in Spokeo, Inc. v. Robins269 and its 2021 decision in TransUnion L.L.C. v.
Liability under the Act is not confined to credit repair organizations, but applies to “any person” who fails to comply with the Act,289 and certain Act provisions place requirements on any person.290 Thus, liability may extend to any person or entity that is directly or indirectly involved in deception or other violations of the Act—such as assignees of a credit repair organization’s contracts,291 related corporations involved in a deceptive credi
The Federal Trade Commission (FTC) enforces CROA under the FTC Act, whether or not the organization otherwise comes under the FTC Act’s jurisdiction.386 The FTC has charged many credit repair organizations and their principals with misleading consumers by falsely and deceptively claiming the ability to improve credit records and by not honoring refund guarantees, not only under CROA and the FTC Telemarketing Sales Rule, but also under its general authority to proceed against unfair and deceptive practices in or affecting commerce.
Most states have passed their own statutes, often termed the state Credit Services Organizations Act, to deal with abuses by credit repair organizations.391 These statutes typically follow the federal CROA closely in some respects, but also differ in significant ways, often imposing additional requirements such as registration and bonding.
The Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994 can sometimes apply credit repair organizations through its implementing regulation, the Telemarketing Sales Rule.
Almost all states have their own telemarketing laws that afford a private cause of action to consumers.513 Most of these statutes do not place special restrictions on credit repair clinics, but in many cases a credit repair clinic that has conducted a sale over the telephone will have violated one of the more general prohibitions of the state telemarketing statute. For example, many require specific disclosures and a written contract or confirmation of the transaction.
The Federal Arbitration Act (FAA) was not enacted to force parties into arbitration, but to enforce parties’ voluntary agreements to arbitrate specified disputes. “Arbitration is simply a matter of contract between parties; it is a way to resolve disputes—but only those disputes—that the parties have agreed to submit to arbitration.”1
This chapter discusses a number of challenges to the valid formation of an arbitration agreement.
General principles:
The Federal Arbitration Act (FAA) provides that a court may compel arbitration only “upon being satisfied that the making of the agreement or the failure to comply therewith is not at issue.”5 The FAA policy in favor of enforcing arbitration clauses does not come into play in determining whether an agreement to arbitrate exists.6
The burden is on the party seeking to compel arbitration to prove that a valid agreement to arbitrate was formed, and failure to produce an agreement is grounds for denial of the motion.10 Thus, the Louisiana Supreme Court rejected a debt collector’s argument that the consumer should have the burden of proving he had not agreed to arbitrate:
Whether a binding agreement to arbitrate has been formed is always a question for the court, not the arbitrator.
“Assent must be manifested by something. Ordinarily, it is manifested by a signature.”30 Subject to a number of defenses described in this subsection, a party that signs an arbitration clause, as with any other agreement, is deemed to have assented to it, even if the party later claims they did not intend to agree to arbitration.31
The worker’s or consumer’s signature must be made with the intent to agree to the agreement containing the arbitration clause. If the worker or consumer crosses out the arbitration clause before signing, this action should be sufficient to reject the clause.45