Banking & Credit

Fact: Financial Companies Deny Military Families Their Day in Court

By CFA Staff

This morning, financial industry lawyers and lobbyists are lashing out at advocates for consumers and military families regarding the CFPB’s arbitration rule. They claim that their lobbying efforts to overturn the protections established in the rule will not impact military families.

In a blog piece, one of the industry’s lawyers alleges that proponents of the CFPB rule have “either chosen to ignore or have overlooked the Military Loan [sic] Act, which already prohibits the use of arbitration agreements in most consumer credit contracts entered into by active-duty servicemembers and their dependents.”

The Consumer Federation of America has long studied the impact of financial practices targeted at the military and advocated for the Military Lending Act. We are concerned that the industry’s argument does not accurately reflect reality.

Fact: The Military Lending Act does not protect families from bad practices on many consumer financial products and services.

The Military Lending Act does not cover one of the most prevalent types of debt held by active-duty servicemembers and their families: auto loans. According to a letter from the Under Secretary of Defense for Personnel and Readiness, “auto financing represents the most significant financial obligation for the majority of Service members, particularly in the junior enlisted grades.”

72% of military installation Personal Financial Managers, legal assistance attorneys, and financial counselors noted that they had worked with a servicemember on auto lending concerns in the previous six months.

It also does not cover harms from credit reporting agencies, such as the impact of the massive data breach at Equifax. In a $60 million settlement with TransUnion, military personnel were among those mislabeled as potential terrorists or criminals.

Fact: Members of the military have been forced into arbitration when asserting their rights under the Servicemembers Civil Relief Act.

The Servicemembers Civil Relief Act (SCRA) provides special protections to address a major financial issue for military families: debt they incur prior to enlistment. For example, the average Air Force recruit arrives at basic training at Lackland Air Force Base in Texas with over $10,000 in debt. While military families have protections under the SCRA, they can still be denied their day in court.

Take the example of US Army National Guard Sergeant Charles Beard. According to a legal filing by the Department of Justice, subprime auto lender Santander “succeeded in its effort to use an arbitration clause included in its loan documents to prevent US Army National Guard Sergeant Charles Beard of Lemoore, California from pursuing systematic relief through a class action lawsuit he filed in federal court in California alleging that Defendant had repossessed servicemembers’ vehicles in violation of the SCRA. Requiring Sergeant Beard to resolve his dispute in a private, individual arbitration rather than a public class action lawsuit hindered the ability of Sergeant Beard to pursue relief for anyone but himself.”

By the time Santander was caught by regulators, it had illegally repossessed 1,100 vehicles from military families. Had Sgt. Beard been able to pursue his group claim, many of the military families could have been safeguarded from Santander’s wrongdoing.

Arguments that suggest the CFPB’s arbitration rule has no impact on military families should be discarded.

We echo the view of The Military Coalition, which wrote to Congress: “Our nation’s veterans should not be deprived of the Constitutional rights and freedoms that they put their lives on the line to protect, including the right to have their claims heard in a trial by a jury when their rights are violated. The catastrophic consequences these clauses pose for our all voluntary military fighting force’s morale and our national security are vital reasons for this rule to take effect immediately.”