Charles Beard, a sergeant in the Army National Guard, was on duty in Tikrit, Iraq, when repossession men in California took his family car. (Credit Matt Black for The New York Times)
Yesterday, in a front page article, the New York Times detailed the damage wrought by mandatory arbitration on the legal rights of our men and women in uniform. Those on military active duty have numerous financial protections under the Servicemembers Civil Relief Act (known as the “SCRA”). These rights include protections from foreclosure or repossession while deployed. But mandatory arbitration clauses in financial contracts–such as mortgages or car loans–often make it difficult or impossible for a servicemember to sue to enforce such rights.
Arbitration clauses are portions of contracts that require any dispute stemming from that contract to be resolved by a panel of arbiters, rather than a court. Most consumers are unaware that such clauses exist, according to a report from the CFPB released last week. Yet financial institutions, in particular, often employ arbitration and for good reason: consumers bringing financial claims before arbitration panels succeed only about 20% of the time, even when invoking military rights such as those in the SCRA.
“Mandatory arbitration threatens to take these laws and basically tear them up,” said Col. John S. Odom, Jr., a retired Air Force lawyer now in private practice in Shreveport, La. High-ranking Defense Department officials agree, telling Congress that “service members should maintain full legal recourse.”
Last year, Sen. Lindsey Graham of South Carolina introduced a bill in Congress that would ban the use of mandatory arbitration in resolving SCRA-related disputes. But the financial industry’s powerful lobbyists objected and the bill never made it out of committee. As a result, the SCRA rights of our military men and women continue to be threatened by mandatory arbitration.
Senator Graham has promised to reintroduce the same bill this session.
Graham Newman is an attorney with Chappell Smith & Arden, P.A. and has significant experience litigating the Servicemembers Civil Relief Act, arbitration disputes, and class actions pertaining to both. His successes in these fields include the case of Rowles v. Chase Home Finance, LLC, a SCRA class action that settled for $56 million on behalf of approximately 10,000 men and women in uniform.