When the brave men and women of the U.S. Armed Forces are deployed, their primary mission is to protect our nation. That mission can be jeopardized when their lives are interrupted with consumer scams, abuses, and fraud. Predatory schemes are commonplace and often specifically target service members, leading to significant financial strain on service members, veterans, and their families. Indeed, a study by the U.S. Army Reserve found that financial stressors were the second leading cause of suicide among service members in 2013.
Recognizing this, Congress extended financial and civil protections to our military and their families in 2003 through the Servicemembers Civil Relief Act (“SCRA”). SCRA was intended to ease economic burdens on military personnel called to service and ensure military readiness by extending rights to service members and protecting them against default judgments, foreclosures, and repossessions. However, SCRA assumes service members will be able to access the court system to enforce these crucial protections.
In the years since SCRA passed, banks and lenders began quietly stripping service members of these rights through a growing practice known as forced arbitration. Buried in the fine print of standard contracts, “ripoff clauses” block service members from court and instead funnel all claims into secretive arbitration systems set up by the very corporation that broke the law. Recent changes to the Military Lending Act prohibit this practice for specific types of transactions, but banks and lenders can still push service members into arbitration in many circumstances.
Forcing service members to arbitrate with handpicked firms that rely on banks and lenders for repeat business raises serious questions of bias. To make matters worse, most contracts also ban service members from joining together to file similar claims as a class, ensuring small-dollar scams can never be challenged. The result is that banks and lenders violating SCRA or other constitutional and statutory protections are immune from accountability, service members have no way to enforce their rights, and our military readiness and national security are threatened.
Indeed, the Office of Servicemember Affairs at the Consumer Financial Protection Bureau (CFPB) reports the agency received more than 19,000 complaints about financial fraud and abuse from service members in 2015 alone. The negative effects of forced arbitration on service members and their families are so widespread that a 2006 Department of Defense report concluded the following:
“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 isn’t a matter of ‘choice’ in take-it-or-leave-it contracts of adhesion.”
—U.S. Department of Defense, 2006
Service Member Spotlight: Sergeant Charles Beard
Sergeant Charles Beard asked for some help making his car payments before deploying to Iraq. His lender offered to postpone his payments for a few months, but in exchange, required Sergeant Beard to sign a modified lease agreement. Little did he know, a forced arbitration provision was buried in the fine print.
While serving his country in Iraq, Sergeant Beard fell behind on his payments. The lender repossessed the car – violating SCRA, which protects active duty soldiers by requiring lenders to obtain court orders before seizing their possessions. Sergeant Beard brought a class action against the lender with other soldiers, but their claims were thrown out due to a class action ban in the arbitration clause.