Were arbitration clauses in South Carolina mortgage broker contracts automatically invalid?

Plain-English summary

A legislator asked whether a clause limiting a mortgage broker's borrower to arbitration was valid. The 2000 informal opinion said arbitration clauses in those contracts were not invalid as a class. State and federal policy favored arbitration, but a clause still had to satisfy applicable statutory notice requirements and ordinary rules for forming a contract. The AG identified lack of consideration and unconscionability as examples of challenges courts had considered.

The opinion did not approve a particular form or settle any borrower's dispute. It said only a court could decide whether a specific clause would be enforced.

Currency note

This opinion was issued in 2000. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Q: Did the AG say mortgage arbitration clauses were always invalid?
A: No. It said neither the South Carolina courts nor legislature categorically prohibited them at the time.

Q: Did every arbitration clause automatically bind a borrower?
A: No. The letter said the clause had to meet notice requirements and general contract-formation rules.

Q: What challenges did the AG mention?
A: It cited cases involving inadequate consideration and unconscionability, without deciding those issues for a particular mortgage contract.

Q: Who would decide whether a particular clause could be enforced?
A: The AG said only a court could make that case-specific determination.

Background and statutory framework

The letter identified the South Carolina Uniform Arbitration Act and the Federal Arbitration Act, when interstate commerce was involved, as sources of rules for arbitration provisions. It also applied ordinary contract law to the clause's validity.

Citations and references

• §15-48-10
• Towles v. United Healthcare Com.
• Lackey v. Green Tree Financial Com.

Source

• Landing page: https://www.scag.gov/opinions/opinions-archive/october-18-2000/
• Original PDF: https://www.scag.gov/wp-content/uploads/2013/11/00oct18easterday.pdf

Original opinion text

The State of South Carolina

OFFICE OF THE ATTORNEY GENERAL
C H A RLIE CON DO N
AITORNE Y GE NERA L

October 18, 2000
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The Honorable Michael E. Easterday
Member, House of Representatives
23 Wade Hampton Boulevard
Greenville, South Carolina 29609
Dear Representative Easterday:
By your letter of October 10, 2000, you have requested an opinion of this Office concerning arbitration clauses in certain contracts. Specifically you wish to know whether a clause in a contract that limits their recourse to arbitration is valid.

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In short, arbitration clauses in contracts between a mortgage broker and a borrower are not invalid per se. In South Carolina neither the courts nor the General Assembly directly prohibit the inclusion of arbitration clauses in mortgage agreements. In fact, both state and federal policy favor arbitration as a means ofresolving disputes. See Towles v. United Healthcare Com., 338 S.C. 29, 524 S.E.2d 839 (S.C. App. 1999). However, to be enforced, arbitration clauses must comply with certain statutory requirements, particularly concerning notice to the parties that such a clause is included in the contract. Both the South Carolina Uniform Arbitration Act, codified at S.C. Code Ann. §15-48-10 et seq., and the Federal Arbitration Act, applicable when the agreement affects interstate commerce and codified at 9 U.S.C. A. § 1 et seq., contain guidelines for the proper inclusion of arbitration clauses in contracts. In addition to special notice requirements for arbitration clauses, courts will apply laws governing the formation contracts to determine the validity of the clause. See Towles, 338 S.C. at 37, 524 S.E.2d at 844. For example, arbitration clauses have been challenged for lack of consideration and for unconscionability. See Hull v. Norcom, Inc. 750 F .2d 154 7 (11th Cir. 1985) (unilaterally binding arbitration provision invalid for insufficient consideration); Lackey v. Green Tree Financial Com., 330 S.C. 388, 498 S.E.2d 898 (S.C. App. 1998)(arbitration clause challenged as unconscionable but upheld by appellate court).

Thus, although arbitration clauses are not invalid per se, whether an arbitration clause in a particular contract between a mortgage broker and borrower would be enforced must be determined on a case by cases basis. Of course, only the courts could make such a determination.

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R E~tul' KT C . D ENN IS B t; IUJING

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POST OFFICE B ox 11 549

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C OLUM BI A. S.C. 292 11-1 549

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T ELEPllONE : 803-734 -3970

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FACS IMILE: 803-253-6283

Representative Easterday
October 18, 2000
Page 2 of2

This letter is an informal opinion only. It has been written by a designated Senior Assistant Attorney General and represents the position of the undersigned attorney as to the specific question asked. It has not, however, been personally scrutinized by the Attorney General nor officially published in the manner of a formal opinion. With kind regards, I remain

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Robert D. Cook
Assistant Deputy Attorney General

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