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Two More Mandatory Arbitration Clauses Voided
Two state high Courts have recently found certain mandatory arbitration clauses in consumer loan contracts to be unconscionable.
In the case of Williams v. Aetna Finance (83 Ohio St. 3d 464; 700 N.E. 2d 859, 11/4/98), the Supreme Court of Ohio struck down a clause which required a consumer to pay large fees simply to advance a case to arbitration. Citing a 1993 decision against ITT Finance Co., the court stated that “[i]n a dispute over a loan of $2,000 it would scarcely make sense to spend a minimum of $850 just to obtain a participatory hearing.” The Williams case involved a “pitchman” who was paid referral fees to bring homeowners to a finance company for expensive home equity loans.
And in the case of Arnold v. United Company Lending Corp. (511 S.E. 2nd 854 [W.Va. Dec. 14, 1998]), the West Virginia Supreme Court of Appeals held that it was unconscionable for a lender to prohibit a consumer from going to court, while reserving the right to go to court itself. Given the unequal bargaining position of the parties, the “adhesion” nature of the contract and the clause’s “complete preservation” of the lender’s right to go to court to enforce the contract, the court found the clause “void for unconscionability” and unenforceable as a matter of law.