4th Circuit: Dodd-Frank Bars Mandatory Arbitration of HELOC-Related Claims

The U.S. Court of Appeals for the Fourth Circuit recently held that the Dodd-Frank Amendment to TILA that prohibits mandatory arbitration clauses in mortgage loans precludes a bank from requiring arbitration of claims concerning the set-off of funds from deposit accounts to cover an outstanding balance on a Home Equity Line of Credit (HELOC).

The court held that the deposit account agreements that contained the arbitration clauses “related to” the HELOC, which is a mortgage loan, such that the relevant TILA provision did apply to prohibit mandatory arbitration in this case.  The court further held that the amendment of one of those agreements to add the arbitration clause, with the option to opt out of such amendment for 45 days, was only effective at the end of the 45-day period, which took that amendment past the effective date of the TILA amendment prohibiting such clauses.  If the arbitration provision had predated the TILA amendment, however, it would have been valid.

One judge partially dissented, reasoning that the court lacked jurisdiction.