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Impact on military of CRA override of CFPB arbitration rule continues to be distorted
Tuesday, October 24, 2017

Enough is enough!

I recognize that reasonable minds can differ with respect to whether the Senate should override the CFPB arbitration rule.  However, it is inexcusable when plaintiffs’ lawyers and consumer advocates blatantly distort the impact that the override of the arbitration rule will have on members of the military.

In a recent article urging the Senate not to override the arbitration rule, Philadelphia plaintiffs’ lawyer James Francis argued that the override would “strip away our right of access to the courts – a right that is especially important for service members.”  In an attempt to justify the rule, he claimed that “[m]ilitary consumers report identity theft at roughly double the rate of the general public” and linked that claim to the recent Equifax data breach.  According to Mr. Francis, “[c]lass actions are uniquely suited to helping our military.”

In a similar vein, consumer advocate Paul Bland wrote in a recent tweet that the CFPB rule is “also an attack on the rights of service members, who’ve often gotten real relief from cheating banks through class actions.”

Like some lawmakers, Mr. Francis and Mr. Bland have either chosen to ignore or have overlooked the Military Loan Act, which already prohibits the use of arbitration agreements in most consumer credit contracts entered into by active-duty servicemembers and their dependents.  Since 2007, creditors have been prohibited by the MLA from including arbitration agreements in contracts for consumer credit extended to active-duty service members and their dependents where the credit is a closed-end payday loan with a term of 91 days or less in which the amount financed does not exceed $2,000, a closed-end vehicle title loan with a term of 181 days or less, or a closed-end tax refund anticipation loan.  In 2015, the Department of Defense adopted a final rule that dramatically expanded the MLA’s scope.

The final rule extended the MLA’s protections to a host of additional products, including credit cards, installment loans, private student loans and federal student loans not made under Title IV of the Higher Education Act, and all types of deposit advance, refund anticipation, vehicle title, and payday loans. The rule applies to transactions or accounts consummated or established after October 3, 2016 for most products, and credit card accounts consummated or established after October 3, 2017.

Mr. Francis’ attempt to link the arbitration rule to the Equifax data breach is also a distortion.  As we have previously commented, the effort of consumer advocates to portray the Equifax data breach as an example of why class actions are needed to protect consumers is a tempest in a teapot.  The breach has nothing to do with the arbitration rule.  While the rule covers some credit reporting company activities, it does not appear to cover data breaches such as this one.

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