Defense Department Appropriations Bill Includes Precedent-Setting Ban on Arbitration Clauses for Service People

by Paul Bland

I've just seen what I understand is the final language of Sen. Talent's amendment to the DoD appropriations bill, which is aimed at protecting service people against the predations of payday lenders. Several weeks ago, the Defense Department released a ground-breaking report, which discussed how predatory lending by pay day lenders was harming our national security. There is a body of evidence showing that pay day lenders have particularly targeted service people for years (co-blogger Chris Peterson has published a study on this point that left little doubt), and many service people have had their military careers interrupted as they were unable to extricate themselves from the cycle of debt. The DoD study brought a torrent of publicity -- USA Today broke the story on the front page a few weeks ago, and in the intervening weeks, literally dozens of newspapers have editorialized in support of the DoD's recommendations. Senator Talent and a number of other legislators decided to take action.

While the centerpiece of the legislation is a hard 36% usury cap on loans to covered military personnel, there is also a provision dealing with mandatory arbitration. This provision, which was also strongly supported by the DoD, states

"Notwithstanding section 2 of title 9, or any other Federal or State law, rule, or regulation, no agreement to arbitrate any dispute involving the extension of consumer credit shall be enforceable against any covered member [of the U.S. armed forces] or dependent of such member, or any person wh owas a covered member or dependent of that member when the agreement was made."

This language apparently has made it out of the conference committee!