CFPB Reminds Lenders of Changes to Mandatory Arbitration Provisions

The Consumer Finance Protection Agencyrn(CFPB) reminded lenders today that new Truth in Lending Act (TILA) rules banningrnmandatory arbitration provisions go into effect on June 1, 2013 so allrndocumentation for new loans should be ready to go on that date.  Changes to Regulation Z amendments relatingrnto those provisions were contained in CFPB’s final rule on loan originatorrncompensation issued last January.</p

The changes ban “terms that require arbitrationrnor any other non-judicial procedures to resolve any controversy or settle anyrnclaims arising out of the transaction” for any closed in loan secured by arndwelling.  </p

Loans closed before June 1 or for whichrnapplications were received after that date are not covered by the new rule, butrnall lenders must make sure that all loan documents for loans covered under therneffective dates do not contain the arbitration provisions or any reference tornthem. </p

A CFPB spokesperson said that the newrnrule will not affect many mortgage lenders as Freddie Mac and Fannie Mae do notrnallow the provisions in loans they purchase. rnWhile arbitration provisions are widely used in non-mortgage consumerrnfinancial products and services they are not affected by the new rule.  The Dodd-Frank Act requires CFPB to conduct arnstudy of these agreements with authority to limit them if necessary and in Aprilrnthe Bureau began the first steps in conducting that study. 

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