Are Corporations Treating Our Troops (And You) Fairly?

By Greg Webb, March 20, 2015

Mandatory arbitration—you may not know what it is, but you have mostly likely signed a contract agreeing to accept arbitration as an alternative to a lawsuit in the case of a grievance. A Consumer Financial Protection Bureau study, released this week, found that among consumers whose credit card contract included an arbitration clause, fewer than 7 percent understood that they could not sue their card issuer.   These arbitration clauses are not just used in credit cards.  They have also become standard operating procedure for many businesses.

Corporations use arbitration as a way of saving money and reducing the likelihood of lawsuits. The arbitration’s are mandatory, binding, and often controlled by the corporation. The corporation picks the arbitrator, it picks the location, and there is no one watching to ensure compliance with federal law. By disallowing lawsuits the corporations also prevent class action lawsuits. In other words, they shield themselves from the consumer’s right to seek fair redress when things go wrong.

There are currently two cases in the news involving active duty military personnel. In both cases the men were treated in a way that violates federal law. They were unable to pursue grievances against the companies due to mandatory arbitration clauses. Both involved car leases and issues arising due to overseas deployment. Neither was allowed to file a lawsuit under the arbitration clause—but both have spoken out widely about their circumstances. In the case of Sargent Beard, whose car was illegally repossessed while he was deployed in Iraq, it took 4 years of arbitration before he was awarded $6,500 in his case. Currently the Justice Department is taking action against Santander Consumer, the leasing company involved. A spokesperson for Santander Company, said that since 2012, “the lender has used systemic controls to prevent improper repossessions of vehicles,” adding that this included vehicles of military members protected under the S.C.R.A.  (NY Times, 3/10/15)

The government has historically offered certain protections to troops serving to defend our country-dating back to the Civil War. We have a federal law, the Service Members Civil Relief Act, S.C.R.A., which “under the law, active duty military members and their families are protected from repossession and foreclosure without a court order. It allows them to terminate any real estate or auto lease when their military orders require them to do so. And it requires lenders to reduce the interest rates on any loans to 6 percent.” This is the law corporations seek to avoid with forced arbitration clauses.

Just last year a bi-partisan bill was presented in Congress that would have allowed service members the right to opt out of arbitration and gain the ability to file lawsuits if necessary. The US Chamber of Commerce and the Securities Industry and Financial Markets Association, Sifma, opposed the legislation. Sifma is Wall Street’s major trade group, which ironically includes JP Morgan and USAA, two businesses that claim to cater to veterans. USAA, an insurance company exclusively for military members and families, claims to be in support of the legislation.  “A spokesman for USAA said that the company supported the bill because it would have been “good public policy for the entire industry.” Still, USAA uses mandatory arbitration clauses in many of its financial service contracts with service members.”

Mandatory arbitration is the most effective way for businesses to avoid lawsuits and they are lobbying hard against proposed legislation that would change that.  Arbitration saves companies money while denying rights to claimants.  A number of trade groups contacted legislators last year, asking them for time to make internal changes. It is doubtful that the corporations have much interest in fixing their system. The GAO’s research found, in 2012 alone, financial institutes violated the law (S.C.R.A.) more than 15,000 times. And last month “Santander Consumer USA reached a $9.35 million civil settlement with the Justice Department over accusations that the lender illegally seized cars from members of the military for a period of nearly five years until 2013.”  (NY Times, 3/17/15)

The current focus is on military personnel, but the issue of mandatory arbitration and the corporate world’s approach to handling grievances and avoiding accountability impacts all consumers. These clauses offer nothing of value to consumers; their sole purpose is to force individuals to give up their rights – to save the company money.  And most often, it is in the fine print.  It is a slippery slope, because next they may want complete immunity from claims by their customers.   The right to our court system should be sacred, and it is – unless you happen to be a citizen as opposed to a corporation.  There are no such clauses that typically control business on business litigation, which is telling.