Forced arbitration clauses are now threatening soldiers and sailors serving and protecting America overseas. Congress passed the Service members Civil Relief Act (SCRA) to provide protections from repossession and foreclosure for U.S. military personnel serving overseas. But as a recent New York Times article illustrates, the consumer lending industry — the companies responsible for your car and home loans — are burying forced arbitration clauses in their contracts that erode the SCRA’s protections.
Normally, when a service person defaults on a consumer loan while serving overseas, the lender needs to secure a court order. This is no small feat given that a court may be sympathetic to a service person who is a couple hundred dollars behind on a car payment because he / she is in a war zone. But through the use of forced arbitration agreements buried in the fine print of the service person’s loan, the consumer lending industry can forego the court order, compel the service member into arbitration — a process which is always favorable to the industry — and go directly to repossessing the car.
As the New York Times article shows, the consumer lending industry favors forced arbitration, will continue to use it, find more expansive ways to adopt it, and repel legislative efforts to curtail its abuses. While the article focuses on the plight of U.S. service members, the threat posed by the expanding practice of requiring consumers to consent to forced arbitration and to abandon the consumer protection laws and court system should be worrisome to all. As citizens and consumers, we need to be aware of the potential for abuse in forced arbitration agreements, be vigilant in promoting consumer protection laws, and maintain an open and fair court system.
For further information, see the American Association for Justice Newsletter.