Mandatory Arbitration: the Gaping Loophole in the Servicemembers Civil Relief Act

The Servicemembers Civil Relief Act suspends judicial and administrative actions against service members while they are in active service so they can devote their attention to their duties. But there is a big, gaping loophole: mandatory binding arbitration.1

Most consumer contracts have mandatory binding arbitration provisions these days. It’s a way for companies to evade class actions in connection with everything from credit cards to cell phones to cloud storage. It is also usually cheaper than litigation — for the companies. For the consumer, arbitration is just as likely to be more expensive than a lawsuit. As it turns out, mandatory binding arbitration also means companies can ignore the SCRA.

Companies aren’t technically ignoring the SCRA. But when a contract has a mandatory binding arbitration provision, everything has to be decided by an arbitrator, including whether the SCRA applies. That can take a long time, unlike court where showing evidence that you are on active duty usually results in an immediate stay whenever the SCRA applies. And unlike court, arbitrators can arbitrarily ignore the SCRA. If they do, there is no appeal.

So do companies love mandatory binding arbitration? You bet. Just look at what debt collectors think about it, as reported by the New York Times:

Debt collectors promoted [the benefits of mandatory binding arbitration] in an industry newsletter, describing mandatory arbitration as a “silver bullet” that could “successfully remove the matter from court and likely end the case in its entirety.”

I think that’s probably all you need to know to (accurately) conclude that mandatory arbitration is bad for service members and consumers.


  1. Then there are the companies that apparently just ignore the SCRA when it is convenient to do so. Like Santander, which recently paid $9.35 million to settle with the Justice Department over claims it repossessed active-duty service members’ cars without getting a court order first.