In researching the seller financing issue, I ran across the following gem in the regulations on the subject. The regulation says:
(“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.”
In other words, you can’t put a mandatory arbitration clause in the mortgage loan documents. Lenders have had those clauses in all their loans for decades. Lawyers have been fighting those clauses for decades, saying they are unfair, the consumer has no way to negotiate this issue, and arbitration favors banks over consumers. The courts have always said, basically, “Too bad. This is a really important issue to the federal government, and the federal preference for arbitration of differences, rather than lawsuits, trumps everything. Such clauses are legal, and even if states pass laws saying they are illegal, those laws are not enforceable.” Alabama used to have a statute saying mandatory arbitration clauses are not enforceable. The courts ruled that our statute was not enforceable. Back to arbitration, in other words.
This is one battle in a whole area of the law about states rights vs. federal power, and the ever-expanding role of federal power. Don’t get me started on that. I’m in favor of very limited federal power. But, they seem to have all the power, so what can we do?
On the other hand, the feds got around to some topic near and dear to THEIR hearts, and what did they do? They said, “no arbitration clauses.” Presumably, they don’t think such clauses are fair, and they probably think arbitration favors lenders over consumers.
Funny world we live in, isn’t it?