Is arbitration unfair to military personnel?
by Carol Thompson
Those serving in the United States military are entitled to special protections from foreclosure and repossession. However, using mandatory arbitration clauses, lenders violate the laws leaving those who serve vulnerable to financial distress.
The Servicemembers Civil Relief Act (SCRA) requires that a court order be obtained for a home foreclosure. Even threats to foreclose without going to court are illegal.
The same law applies for vehicle repossessions.
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To receive protection under SCRA a service member must show that military service had a “material effect” on the legal or personal financial matters.
In 2006, a report by the U.S. Department of Defense stated, “Service members should maintain full legal recourse against unscrupulous lenders. Loan contracts to Service members should not include mandatory arbitration clauses or onerous notice provisions, and should not require the Service member to waive his or her right of recourse, such as the right to participate in a plaintiff class. Waiver is not a matter of “choice” in take-it-or-leave-it contracts of adhesion.”
In the military, forced arbitration is especially burdensome for those who are unable to pay costs associated with expensive arbitration proceedings; or to travel to locations which are chosen by the lender. For a mobile population like the military, these terms make it even more difficult for aggrieved service members to obtain a fair resolution of their claims, according to Public Citizen, a consumer advocacy organization.
In 2007, while serving in Iraq, Charles Beard’s car was repossessed without a court order. A sergeant in the U.S. Army National Guard, Beard entered into a contract with automotive financing company Santander Consumer USA, Inc., and lender Triad Financial Corp., to finance the purchase of his new Kia Sportage. A year later, he was called into active military service, and prepared to leave the country for Iraq. Beard notified the lender of his deployment and requested assistance on future payments, Public Citizen reported.
The lender offered him a forbearance for a few months’ car payments. Left with little choice, Beard signed a second contract, presented to him on a take-it-or-leave-it-basis before departing for Iraq. The contract formalized an extended period for making his payments and contained a forced arbitration clause and a ban on class actions. As he served in Iraq, Beard fell behind on his payments. The lender repossessed his vehicle “without a court order and sold it at auction.”
In 2011, according to Public Citizen, Beard sued the lenders on behalf of himself and other service members for improperly repossessing vehicles while the service members were on active duty, and for charging more than six percent on his loan. In April 2012, the court dismissed Beard’s lawsuit and directed his case into private arbitration. Beard had argued that the SCRA granted him a right to pursue a civil action.
The court rejected his claim and forced Beard into arbitration.
An April 2012 Public Citizen report recounted a similar story of Matthew Wolf, a Judge Advocate General officer who filed a class action in 2010 on behalf of himself and others against an auto company for SCRA violations. Section 305 of the SCRA allows service members to terminate car leases and receive a refund for all advance payments made. According to his complaint, when Wolf returned his car, the dealer refused to refund the advance payments. Wolf’s case was also forced into individual arbitration.
As consumer advocacy groups fight against mandatory arbitration clauses other organizations, such as the U.S. Chamber of Commerce, rally to keep mandatory arbitration in place.