in Lending Act prohibits the inclusion in a residential mortgage loan or open-ended consumer credit plan secured by the principal dwelling of terms requiring arbitration or any other nonjudicial procedure as the method for resolving any controversy or settling claims arising out of the transaction.2 This measure ensures consumers retain the right to pursue legal action in court if necessary. By maintaining consumer access to judicial recourse, the Truth in Lending Act reinforces critical consumer protection measures. 2. Limitations on Servicemembers’ Legal Rights The Military Lending Act generally prohibits terms in certain consumer credit contracts that require servicemembers and their dependents to waive the covered borrower’s right to legal recourse under any otherwise applicable provision of state or federal law, including any provision of Servicemembers Civil Relief Act.3 If the SCRA applies, creditors may not compel arbitration. Additionally, the SCRA was amended to codify the unwaivable right of servicemembers to bring and participate in class actions, “notwithstanding any previous agreement to the contrary.”4 3. Restrictions on Remittance Transfer Consumer Claims Under the Electronic Fund Transfers Act, remittance transfer providers are barred from limiting a consumer’s ability to seek damages or recover costs and attorney fees in disputes. Such limitations are in direct conflict with provisions found in sections 1693m(a)(3) and 1693(l) of the EFTA,5 which establish liability for providers and ensure that consumers have recourse to adequate remedies. This protection emphasizes the importance of holding remittance providers accountable for errors, delays or failures that can have significant financial repercussions for consumers. 4. Disclaimers that Misrepresent Legal Obligations Contractual disclaimers such as “subject to applicable law” or “except where unenforceable” are insufficient to cure the inclusion of otherwise unlawful terms. The use of these disclaimers can mislead consumers into believing certain actions are permissible under some conditions when, in fact, they are not. Courts, including in Ruth v. Triumph Partnerships (577 F.3d 790, 801-02), have found such phrasing problematic, as it implies a conditional legality that is often legally unsupported. Banks must avoid using disclaimers that create an appearance of legality where none exists. Regular Compliance Reviews and Legal Counsel Involvement Given the complex and evolving regulatory landscape, banks are encouraged to conduct compliance reviews of their account agreements at least annually. Legal counsel should play a key role in this review process, as attorneys can provide expertise on current legal standards, identify potential issues with existing disclaimers and waivers, and recommend necessary updates to reflect new legal developments. Banks that proactively monitor agreements ensure terms and conditions uphold consumer protections and minimize legal risks. 1 “Unlawful and Unenforceable Contract Terms and Conditions” (CFPB Circular 2024-03), https://bit.ly/CFPB-2024-03 2 See 12 CFR 1026.36(h)(1), “Prohibited acts or practices and certain requirements for credit secured by a dwelling”. https://bit.ly/3ZWXQVS 3 See 32 CFR part 232.8(b), “Limitations”. https://bit.ly/CFR232-8 4 See 50 USC 4042(a), “Private right of action”. https://bit.ly/50USC4042a 5 See 15 USC 1693(m)(a)(3), “Civil liability”, and 1693(l), “Waiver of rights”. https://bit.ly/3VZY5hM Jefferson Sorley, Jur. M, CRCM Director of Reviews and Products Compliance Alliance info@ComplianceAlliance.org Sorley has more than a decade of expertise in financial institution compliance. His competencies include state regulatory exam management, compliance program management, research and application of applicable federal and state laws and statutes, evaluating internal controls and developing control recommendations. Compliance Alliance is a Preferred Service Provider of the Indiana Bankers Association. JANUARY/FEBRUARY 2025 19
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