Veterans May Have No Recourse in Foreclosure and Repossession Cases

As reported by the New York Times, laws intended to protect veterans from foreclosures and repossessions are often ineffective.

US law provides numerous protections – some dating back to the Civil War – to active duty service members and veterans.

For example, under the Servicemembers Civil Relief Act (S.C.R.A.), active-duty military personnel and their family members are protected from foreclosure and repossession without a court order. They may terminate any auto or real estate lease when their military orders require them to relocate.

However, violations of the S.C.R.A. are widespread, according to the Times.

The US Government Accountability Office found that in 2012 financial institutions failed to comply with the S.C.R.A. more than 15,000 times.

Illegal Repossessions

In February, 2015, Santander Consumer USA reached a $9.35 million settlement with the US Justice Department over accusations that the auto lender had illegally seized cars from servicemembers by failing to obtain a court order.

Santander allegedly performed 760 illegal repossessions itself, and also sought fees from an additional 352 servicemembers based on illegal repossessions by other lenders.

The case started with a complaint by a sergeant whose car was illegally repossessed in the middle of the night while he was in basic training.

Arbitration Clauses

Some claim that mandatory arbitration clauses in some financial agreements prevent veterans from getting a fair shake.

As reported by the Times, consumers who have disputes with credit card companies, banks, or other financial institutions often are bound by arbitration clauses that they may not have realized were in the fine print in the agreements they signed. These clauses affect roughly 80 million credit card customers, for example.

The Consumer Financial Protection Bureau is critical of such clauses, and suggested that they should be limited. For example, these clauses restrict the ability of consumers to file class-action lawsuits alleging harm to a large number of people. Also, it is generally extremely difficult to appeal an arbitration award.

The Bureau found that fewer than 7% of the people affected by the arbitration clauses realized that they weren’t able to sue the companies that issued their cards.

Faster and Cheaper?

Financial industry groups say that arbitration clauses are a less expensive and faster way to resolve disputes, as compared to conventional litigation.

However, as reported by the Times, arbitration is not necessarily inexpensive. When a captain in the Army Reserve tried to turn in his leased Infiniti and recover his $400 deposit, Nissan refused to refund his money. He was told that taking the case to arbitration could cost him $8,200. Nissan said that it was working with the captain to resolve his complaint.

Neither is arbitration necessarily speedy. It took more than four years after the middle of the night repossession of the sergeant’s car before an arbitrator awarded him $6,500.

In 2014, a bipartisan bill attempted to allow servicemembers to opt out of arbitration clauses. After financial industry lobbying, the bill never made it out of committee.

If you’re a servicemember facing repossession or foreclosure, you may wish to consult an attorney in your area.