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Consumer Arbitration Agreements: 6.4.1 In General

When a party fails to participate in an arbitration or comply with the applicable rules of the arbitration forum, the other party has at least three options: ask the arbitrator to issue sanctions or award a default judgment, depending on the forum’s rules; go to court and seek a judicial order under section 4 of the Federal Arbitration Act (FAA) requiring the delinquent party to comply with the forum’s rules; or ask a court to find that the party’s conduct in failing to participate in the arb

Consumer Arbitration Agreements: 6.4.3 Failure to Pay Fees or Costs or Otherwise Participate in an Arbitration

Under both the American Arbitration Association (AAA) and JAMS rules, businesses must pay almost all of the hefty cost of consumer arbitration—around $5000 or more—while the consumer only pays a $200 or $250 filing fee. Many companies, such as smaller car dealerships, refuse to front this kind of money, and they are particularly unlikely to pay ongoing costs once an arbitrator starts ruling against them on preliminary issues like the scope of discovery.

Consumer Credit Regulation: 2.2.5.2 Consumers Protected by the MLA

The MLA covers consumer credit that is extended to an individual who, at the time he or she becomes obligated, is an active-duty member of the military or the dependent of an active-duty member.60 Being on active duty is defined as being on active duty on a call or order that does not specify a period of thirty days or less.61 Active duty includes Active Guard and Reserve duty.62

Consumer Credit Regulation: 2.2.5.3 Creditor Identification of Those Covered by the MLA

A creditor with thousands or even millions of accounts must identify which customers are covered by the Act, because the MLA provides protections that other consumers do not enjoy. The DoD regulations allow creditors to use any method to assess whether a consumer is a covered borrower,69 but the creditor is liable if it fails to identify a covered person and fails to offer that person MLA protections.

Consumer Credit Regulation: 2.2.5.5 Covered Consumer Credit

DoD regulations in effect prior to October 2016, limited covered consumer credit just to three forms of consumer credit—payday, auto title, and refund anticipation loans. The old DoD regulations defined each of those forms of credit and some creditors sought to evade the MLA by offering credit that fell just outside those definitions.

Consumer Credit Regulation: 2.2.5.7.3 No arbitration requirements and no unreasonable notice requirements

Creditors cannot extend consumer credit where the creditor requires the consumer to submit to arbitration or imposes other onerous legal notice provisions in the case of a dispute.128 DoD interpretations provide that credit agreements can include an arbitration agreement as long as the agreement contains a savings clause that excludes the agreement’s application to servicemembers or their dependents.129 Thus, the MLA is violated when credit agreements extended to servicemembers or their dependen

Consumer Credit Regulation: 2.2.5.7.5 Limits on taking a vehicle title as security

The MLA prohibits a creditor from taking as security a motor vehicle’s title.143 Only for the purposes of this provision, “creditor” excludes “a person that is chartered or licensed under Federal or State law as a bank, savings association, or credit union.”144 The limit on taking as security a motor vehicle’s title is in addition to the general imposition of a 36% cap on any form of consumer credit.145

Consumer Credit Regulation: 2.2.5.8 Application of State Credit Laws to Military Personnel Stationed in the State

States cannot authorize creditors to charge active -duty military or their dependents interest rates higher than the legal limits for residents of that state. States also cannot permit the violation or waiver of any state credit statute that benefits state residents because of the consumer’s nonresident or military status, regardless of where the consumer’s permanent home of record is located.154

Consumer Credit Regulation: 2.2.5.10.2 Defenses

A person is not liable for the remedies specified in the specific MLA regulation at 32 C.F.R. § 232.9(e) if the person shows by a preponderance of the evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.171 Both criteria must be met—the violation must not be intentional and must have resulted from a bona fide error.

Consumer Credit Regulation: 2.2.7.1a Constitutionality of the CFPB’s Funding

On October 21, 2022, a three-judge panel of the Fifth Circuit ruled that the Consumer Financial Protection Bureau’s (CFPB) funding mechanism is unconstitutional because it violates the Appropriations Clause.200 In addition, the Fifth Circuit held that the CFPB’s Payday Lending Rule is invalid because it was promulgated using the unconstitutional funding mechanism.

Consumer Credit Regulation: 2.3.11.6.1 Wage assignments

Many states have laws restricting wage assignments.356 These laws can be important when evaluating payday-style loans such as earned wage advances that rely on the borrower assigning an upcoming paycheck to the lender or instructing the borrower’s employer to turn all or part of the paycheck over to the lender.

Consumer Credit Regulation: 2.3.12.1 Introduction

A number of states have laws regulating “credit services organizations.”360 These laws typically deal with abuses by credit repair organizations, a topic discussed in another treatise in this series.361 They are relevant for this book because most also apply to organizations that assist or offer to assist consumers in obtaining extensions of credit.

Consumer Credit Regulation: 2.3.12.2 Coverage

The state credit services laws that apply to organizations assisting or offering to assist consumers in obtaining extensions of credit are usually limited to credit for personal, family, or household use. Typically, they apply to an organization only if it provides its services in return for the payment of money or other consideration.

Consumer Credit Regulation: 2.3.12.5 High-Rate Lenders’ Use of Credit Services Laws to Evade State Usury Caps

In some states, there is a danger that high-rate fringe lenders will use the state credit services law as a way of evading state usury statutes. In Texas, an organization, CPCWA Co., is registered under the state’s weak credit services organization law. That law did not place any cap on the fee a licensed credit services organization could charge for arranging an extension of credit. CPCWA Co. then, for a $1,500 fee, “arranged” a title pawn loan with proceeds of $500.