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Arbitration clause in subprime loan contract declared unconscionable.

Article Excerpt
The North Carolina Supreme Court has ruled that a lending company's contract was unenforceable because its mandatory arbitration clause was overwhelmingly unfair to plaintiffs. The decision marks the first time an appellate court in North Carolina has ruled a contract unconscionable. In its divided opinion, the state's highest court also declined a defense request to sever or rewrite the arbitration clause. (Tillman v. Commercial Credit Loans, Inc., 655 S.E.2d 362 (N.C. 2008).)

The court found that the clause allowed the lender, but not the borrowers, to take legal action; prohibited claims joinders and class actions; and imposed prohibitive costs on the plaintiffs, including arbitration costs and a "loser pays" rule. Writing for the court, Judge Patricia Timmons-Goodson said the judges were swayed by the "inequality of bargaining power between the parties and the oppressive and one-sided nature of the clause."

"Through the arbitration clause ... defendants have...

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