It should be noted that the Truth in Lending Act (TILA) ban on mandatory arbitration provisions in certain mortgage loans takes effect this month. The prohibition — affecting loans with applications received on or after June 1, 2013 — applies to consumer credit transactions secured by dwellings, including home equity lines of credit secured by principal dwellings.
Although this prohibition does not affect arbitration provisions in existing documents, few mortgage lenders currently use arbitration agreements. There is a reason for that and it’s not because the lenders believe arbitration is a bad thing. Several years ago, both Fannie Mae and Freddie Mac stopped purchasing any loans containing mandatory arbitration provisions, which discouraged lenders from including such provisions. But this ban will prevent all lenders from including mandatory arbitration provisions in certain mortgage loans. That’s good news for consumers.
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