Citi to Bar Mandatory Arbitration Clauses

CitiFinancial has announced that it will eliminate mandatory arbitration provisions on real-estate-secured loans later this year and reduce its maximum prepayment penalty.The new mandatory arbitration policy will begin with loans originated after August 2005, the company said. The elimination of such provisions has been a goal of consumer groups. CitiFinancial said the new maximum prepayment penalty will be limited to 3% of the loan amount in the first year, 2% in the second year, and 1% in the third year. The new policies were highlighted by Citi along with Sen. Paul Sarbanes, D-Md., the Leadership Conference on Civil Rights, Self Help Credit Union, the Center for Responsible Lending, and the AARP. Sen. Sarbanes said the new steps "place CitiFinancial in a leadership position in raising lending standards in the consumer finance mortgage industry." Chris Hansen, associate executive director of the AARP, commended Citi and said eliminating mandatory arbitration provisions "will help restore fairness and balance to the lender/homebuyer relationship, and sets a good precedent for the industry."