This week President Bush signed into law a provision that caps at 36 percent interest rates on loans to members of the armed services and their families.
The law, resulting from legislation co-sponsored by Sen. Jim Talent, a Missouri Republican, has gained widespread acclaim from military and consumer groups.
But the law contains another important consumer protection that has gained less publicity. It is one that consumer advocates also praise and hope might be extended to all consumers.
Consumer lawyers say the new anti-predatory-lending law also prohibits binding mandatory arbitration clauses and any other waivers of the right to seek legal recourse.
The prohibition targets clauses in some payday loan contracts that prevent a service member from suing a lender. Under the clauses, to get a loan, a service member had to agree to take any grievance to arbitration and waive the right to take their grievance to court.
“I think the prohibition on arbitration is huge,” said Dale Irwin, a Kansas City consumer lawyer. “Congress has finally acknowledged the unfairness of these kinds of clauses in the consumer context.” Irwin said the law strengthens broader efforts by consumer groups to outlaw arbitration clauses completely.