by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
randolphp@umkc.edu

Consumer Loans: Refinancing mortgages involving debt consolidation loans may be contracts of adhesion, and consequently provisions for binding arbitration may not be enforceable against borrowers. Bell v. Congress Mortgage Co., 30 Cal. Rptr. 2d 205 (Cal. Ct. App. 1994). The court took note of the fact that the binding arbitration provision appeared in the middle of a document and was not highlighted. But it pointedly refused to rely only upon the way in which the documents presented the clause.

Instead, the the court stressed the level of sophistication of the borrowers, the fact that they were unrepresented by counsel, and the fact that in many cases (but apparently not all in this class action), the borrowers were impecunious and desperate for capital to restructure their existing debts. The court also seemed to take into account the many allegations of deceptive practices and unwarranted charges, even though these are mere allegations and in fact are the subject of the lawsuit.

Comment: Do we have another of those hard cases that make bad law? Will it be easy to differentiate other provisions in other consumer mortgage loans from the arbitration clause in this case? The court commented that this was the sort of provision that was "beyond the reasonable expectations of these borrowers?" Exactly what are the "reasonable expectations" of consumer borrowers with respect to default remedies in mortgages? Does anyone know for sure? Are all provisions that go beyond those expectations in danger of being unenforceable due to adhesion? Note that an adhesion contract defense probably would be available even against a holder in due course of a negotiable instrument.

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