Skip to main content

Search

Consumer Arbitration Agreements: 4.8.3 Conflicting, Missing, or Ambiguous Terms in the Agreement

Even if arbitration clauses clearly require binding arbitration, the terms and procedures under which arbitration must proceed must be sufficiently clear. If the consumer agrees to multiple arbitration clauses that conflict with each other, none of the arbitration requirements may be enforceable. A court has refused to enforce any of the arbitration provisions found in three different documents when the arbitration language was confusing and inconsistent from document to document.

Consumer Arbitration Agreements: 4.9.1 General

As described in § 4.8.2, supra, many courts hold that arbitration agreements must be clear and unmistakable. Related to this requirement is a generally applicable state law doctrine that provides that a party does not waive a constitutional or statutory right unless that waiver is made knowingly and voluntarily.269

Consumer Arbitration Agreements: 4.9.2 The Doctrine and FAA Preemption

Parties attempting to enforce arbitration agreements often argue that the FAA preempts state law that might apply the knowing and voluntary waiver standard to arbitration clauses.278 But the FAA only preempts state laws that single out arbitration clauses for discriminatory treatment; it does not preempt generally applicable state law contract doctrines.279 The doctrine that waivers of constitutional rights must be knowing and voluntary is not aimed specifically against arbitration clauses, but

Consumer Arbitration Agreements: 4.9.3 Application of the Doctrine

Although the Ninth Circuit has seemingly struck down the Montana rule,282 Montana cases provide good illustrations of how the knowing and voluntary waiver doctrine has worked in practice. The Montana Supreme Court has found that a ninety-five-year-old widow did not knowingly and voluntarily give up the right to a jury trial when she established a living trust with a brokerage and the fine print included an arbitration clause.283 Courts must rigorously examine such agreements.

Consumer Arbitration Agreements: 4.10.2 Opting Out of an Arbitration Clause

As explained in Chapter 8, infra, more and more companies are including “opt-out” provisions in their arbitration clauses with the purpose of protecting the clause against the argument that it is unconscionable. In cases in which there is a question about whether a party has opted out of an arbitration agreement, the court should decide the issue before compelling arbitration.

Consumer Arbitration Agreements: 4.10.5 Can Assignor Enforce Agreement After Its Assignment

An assignee of a contract containing an arbitration clause can typically seek to enforce the arbitration agreement. However, can the assignor, no longer having rights in the contract, also continue to enforce the arbitration requirement? The argument can be made that in such a situation the assignment extinguishes a party’s right to enforce an arbitration clause if state law and the language of the assignment support such an argument.323

Mortgage Lending: 7.2.1 Introduction

Most abusive lending is not only overpriced but unaffordable from the outset.6 For these loans, default is foreseeable, if not certain. Loans made without regard to the borrower’s ability to repay run against long-standing industry standards.

Mortgage Lending: 7.2.2.1 Overview

Underwriting is the process of determining whether a borrower is qualified for a loan. The Office of the Comptroller of the Currency (OCC) states that “[p]rudent underwriting is of paramount importance to effective lending.”40 According to the OCC:

Mortgage Lending: 7.2.3.1.1 HOEPA

High-cost and higher-priced mortgages on a consumer’s home75 are subject to the Home Ownership and Equity Protection Act (HOEPA).76 Since the Act became effective, loans subject to it (sometimes known as “HOEPA loans” or “Section 32 loans”) cannot be made without regard to the homeowner’s ability to repay.77 This section summarizes HOEPA’s requirements.

Mortgage Lending: 7.2.3.1.2 Higher-priced mortgage rules

Although HOEPA only covers the most expensive loans, the 2008 HOEPA rules added coverage of “higher-priced” mortgages, a category designed to be roughly equivalent to the subprime market.82 These rules only apply to loans for which the creditor received an application on or after October 1, 2009.83 Until 2014, the HOEPA protections did not apply to home equity lines of credit (HELOCs), even if the line of credit met the price trigger.84

Mortgage Lending: 7.2.3.1.3 Ability-to-repay rules for HOEPA and higher-priced mortgage loans from October 2009 to January 2014

For loans originated between October 2009 and January 2014,86 lenders had to take into account the homeowner’s ability to repay when making both HOEPA loans and higher-priced mortgages.87 This requirement meant that creditors were prohibited from making these loans “based on the value of the consumer’s collateral without regard to the consumer’s repayment ability as of consummation, including the consumer’s current and reasonably expected income, employment, assets other than the collateral,

Mortgage Lending: 7.2.3.2 State Laws

About half the states have high-cost loan laws, designed to address predatory mortgage lending.105 Usually these statutes are, like HOEPA, limited to a defined class of loans that carry particularly high interest rates or points and fees.

Mortgage Lending: 7.2.3.3.1 Overview

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) amended the Truth in Lending Act (TILA)112 by imposing significant restrictions on lending without regard to the borrower’s ability to repay.113 These restrictions apply to “residential mortgage loans”—a defined term that includes most closed-end, dwelling-secured loans.114 The statute prohibits lenders from originating a covered loan without making a reaso

Mortgage Lending: 7.2.3.3.2 Minimum ability-to-repay standards

In January 2013, the CFPB issued rules codifying minimum standards for determining affordability.122 These rules are effective for applications received on or after January 10, 2014 but, as with other federal guidance, they may be useful for establishing what existing industry standards require.123 This is particularly true for these rules, which the Bureau described as establishing “minimum requirements.”124

Mortgage Lending: 7.2.3.3.3.2 Presumption of compliance for qualified mortgages

Qualified mortgages are presumed to comply with the minimum standards of affordability applicable to all residential mortgages.149 The presumption of compliance creates a safe harbor that protects lenders from liability under the ability-to-pay rules. For certain loans the presumption of compliance is rebuttable, while for other loans it is not.