Charles Beard, a sergeant in the Army National Guard, says he was on duty in the Iraqi city of Tikrit when men came to his California home to repossess the family car. Unless his wife handed over the keys, she would go to jail, they said.



The men took the car, even though federal law requires lenders to obtain court orders before seizing the vehicles of active duty service members.



Sergeant Beard had no redress in court: His lawsuit against the auto lender was thrown out because of a clause in his contract that forced any dispute into mandatory arbitration, a private system for resolving complaints where the courtroom rules of evidence do not apply. In the cloistered legal universe of mandatory arbitration, the companies sometimes pick the arbiters, and the results, which cannot be appealed, are almost never made public.

That is the experience for many Americans who are contractually obligated to resolve their disputes with investment advisers or lenders in this way. But it is supposed to be different for the troops who are deployed abroad, say military lawyers, state authorities and Pentagon officials.



Matthew Wolf, a captain in the Army Reserve, sued Nissan over a disputed refund arising from a leased car he turned in when he was deployed to Afghanistan. But because of an arbitration clause in his lease, the lawsuit was dismissed, and his dispute was sent to arbitration. Credit Jessica Kourkounis for The New York Times

Over the years, Congress has given service members a number of protections — some dating to the Civil War — from repossessions and foreclosures.



Efforts to maintain that special status for service members has run into resistance from the financial industry, including many of the same banks that promote the work they do for veterans. While using mandatory arbitration, some companies repeatedly violate the federal protections, leaving troops and their families vulnerable to predatory lending, the military lawyers and government officials say.

Consumer lawyers say it is easy to understand why the industry is lobbying against an exemption for service members: One carve-out from mandatory arbitration could bolster broader calls to excise the clauses from contracts altogether.



“If you admit that these are bad for the military, then it follows that they are bad for consumers much more broadly,” said Deepak Gupta, a lawyer in Washington who has represented consumers in cases about arbitration before the Supreme Court.

Arbitration is often stacked against service members from the start. Some of the contracts, for example, offer two possible sites for a hearing: one city on the West Coast and another on the East Coast. Consumer lawyers say the companies invariably pick the city that is farther away from where the customer lives.



But the real power of the clauses, the lawyers say, is that they make it virtually impossible for consumers to band together in a broad legal challenge.



Instead, companies can battle claims one by one. And alone, few consumers can afford to take on companies at all, especially if their disputes revolve around a few hundred dollars. Debt collectors promoted such benefits 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.”