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Truth in Lending: 12.6.5.2.3 Identity of causes of action

The second typical requirement for res judicata is that the causes of action in the two suits must be the same. There is rarely a question that res judicata applies when a consumer litigated and lost a TILA claim in one court and then seeks to litigate that same claim in another court.926 But the issue is less clear when the consumer did not raise the claim in the earlier suit. For example, the earlier suit may have been a foreclosure, collection, or eviction action in which the consumer did not (or could not) file a TILA counterclaim.

Truth in Lending: 12.6.5.2.4 Final judgment on the merits

Res judicata generally applies only if the earlier suit has ended in a final and unappealable judgment.944 Foreclosure cases often generate a number of interim orders; under state law, the order in question may not actually be the final judgment. For example, it may be that only the court’s order confirming the foreclosure sale, not its judgment of foreclosure, is a final judgment.945

Truth in Lending: 12.6.5.4 Judicial Estoppel

A related doctrine is judicial estoppel, which prevents a party from raising issues in a legal proceeding that are inconsistent with a position the party has previously advanced.952 Courts have applied this doctrine to bar TILA rescission claims that consumers failed to list as assets in earlier bankruptcy proceedings.

Truth in Lending: 12.6.7.1 Level of Specificity Required for Pleading TILA Claims

A few aberrant cases apply Federal Rule of Civil Procedure 9(b) to TILA claims, and require them to be pleaded with the specificity required for fraud.965 They generally do not provide any justification for this view. The better view is that Rule 8(a), which merely requires a “short and plain statement of the claim showing that the pleader is entitled to relief,” sets the pleading standard.966

Truth in Lending: 12.6.7.2 Elements to Plead

A number of courts have held that the consumer bears the initial burden of pleading and establishing that the defendant meets the TILA definition of creditor993 or is an assignee.994 The consumer may also have to plead that the credit was extended for personal, family, or household purposes if the claim, like most TILA claims, involves disclosures that are required only for consumer credit.995 However, a specific allegation that the credit was used

Truth in Lending: 12.6.7.3 Tolerances and Affirmative Defenses

The Sixth Circuit has held that the consumer need not plead that an error exceeds TILA’s tolerances,1011 as this is an affirmative defense that the creditor must plead.1012 The Third Circuit, however, while agreeing that the consumer need not plead that the error exceeds TILA’s tolerances, has held that a general denial is sufficient to place the tolerance in issue; a defendant need not plead the tolerance as an affirmative defense or even raise it in the trial court.

Truth in Lending: 12.6.8 Burden of Proof Issues

The scanty case law on the burden of proof assigns the creditor the general burden of proving compliance with TILA, at least once the debtor makes a threshold showing that a violation has occurred.1021 The burden is the same whether the credit is in the hands of an assignee or the original creditor.1022

Truth in Lending: 12.6.9 Asserting TILA Violations in Response to Foreclosure, Eviction, and Collection Actions

Some consumers do not seek help until they are sued by a creditor. For mortgages, the lawsuit is usually a foreclosure action, or, in a nonjudicial foreclosure state, an eviction. For other types of credit, it may be a collection action seeking money damages. This raises the question of how and where to assert any TILA violations related to the transaction. This decision depends on a number of factors.

Truth in Lending: 12.6.10 Forum Selection Clauses

There has been little TILA litigation over the validity of forum selection clauses with arbitration clauses being the exception, discussed in § 12.7, infra. The statutory nature of a TILA claim does not—alone—affect the applicability of a forum selection clause.

Truth in Lending: 12.7.1 Introduction

A major impediment to consumers vindicating their rights under TILA is the widespread use of mandatory, binding arbitration clauses in consumer credit agreements. Those clauses seek to force consumers out of court and into an arbitration forum designated by the creditor. Many consumers drop their valid TILA claims rather than resort to arbitration, thus defeating Congress’s intent that private litigants help enforce the statute.

Truth in Lending: 12.7.2.1 Coverage

The Truth in Lending Act prohibits forced arbitration and similar procedures in connection with residential mortgage loans and open-end consumer credit plans secured by the consumer’s principal dwelling.1046 TILA defines a residential mortgage loan as “a transaction in which a mortgage, deed of trust, purchase money security interest arising under an installment sales contract, or equivalent consensual security interest is created or retained against the consumer’s dwelling to finance the acquisition or initial construction of such dwelling

Truth in Lending: 12.7.2.2 Two Separate TILA Requirements Limit Arbitration

In such covered mortgage loans, TILA section 1639c(e)(1) (the “(e)(1) provision”) prohibits any terms that require arbitration or any other nonjudicial procedure as the method for resolving any controversy or settling any claims arising out of the transaction.1056 The parties can agree to arbitration or a similar procedure at any time after a dispute or claim under the transaction arises.1057

Consumer Arbitration Agreements: 8.1 Introduction

Prior chapters have considered whether an arbitration agreement has been formed, whether it applies to the parties, whether the defendant has waived enforcement of the agreement, and whether federal statutes or regulations limit the agreement’s enforceability. This chapter considers whether particular provisions in the arbitration agreement are unconscionable, prevent vindication of federal statutory rights, or are impossible to carry out, making either the provision or the arbitration agreement unenforceable.

Truth in Lending: 12.7.2.4 Effective Date and Retroactive Effect

As described below, there is no question that the TILA limitation on arbitration agreements in mortgage loans applies to any arbitration agreement entered into after June 1, 2013. This subsection considers the enforceability of arbitration agreements entered into before that date. Two issues are examined below: (1) whether the TILA requirement was effective as of June 1, 2013 or July 22, 2010; and—whichever of the two was the effective date—(2) whether the provision prevents the current enforceability of arbitration agreements entered into before the effective date.

Consumer Arbitration Agreements: 7.2.2 Two Separate TILA Requirements Limit Arbitration

In mortgage loans, TILA section 1639c(e)(1)—the “(e)(1) provision”—prohibits any terms that require arbitration or any other nonjudicial procedure as the method for resolving any controversy or settling any claims arising out of the transaction.45 The parties can agree to arbitration or a similar procedure at any time after a dispute or claim under the transaction arises.46

Truth in Lending: 12.7.3.1 Limits on Arbitration Involving Military Personnel

Federal law prohibits arbitration clauses in consumer credit agreements with military personnel or their dependents, or the enforcement of such a consumer credit agreement.1084 In determining if a borrower is a covered servicemember, a safe harbor is provided if the creditor looks up the borrower in a specified military database or uses a credit report.1085 An arbitration requirement though is unenforceable even after the consumer is no longer a servicemember or a dependent of a servicemembe

Truth in Lending: 12.7.4 A Threshold Issue: Who Determines Arbitrability—the Court or the Arbitrator?

The enforceability of an arbitration clause is for the court, unless the contract also contains a requirement that questions of arbitrability are for the arbitrator, called a delegation clause.1116 If there is a delegation clause, then the Supreme Court treats that clause as a separate agreement, and its enforceability is for the court.1117 Unless the delegation clause is found unenforceable, the enforceability of the arbitration clause itself is then for the arbitrator.

Truth in Lending: 12.7.5 Grounds to Challenge an Arbitration Agreement’s Enforceability

Arbitration is a matter of contract. If there is no arbitration agreement, the consumer cannot be forced to arbitrate his or her TILA claim. The first step in any challenge to an arbitration requirement is to determine if the applicable agreement does in fact contain an arbitration agreement. Particularly in the case of credit cards and other open-end credit, make sure to review the current version of the contract, as amended, because such agreements including their arbitration clauses are frequently amended by correspondence to the consumer.