The 4th U.S. Circuit Court of Appeals ruled in favor of Citibank, stating that military personnel must individually arbitrate disputes regarding potentially unfair credit card interest rate increases after returning to civilian life. This decision reverses a previous trial court ruling and has significant implications for servicemembers and financial institutions.
The case stems from a lawsuit filed by four plaintiffs who sought class-action status against Citibank. They alleged that the bank improperly increased their interest rates on credit card balances accrued during active duty, when the Servicemembers Civil Relief Act (SCRA) capped rates at 6%. Upon returning to civilian status, some plaintiffs experienced substantial rate hikes, with one individual’s rate surging to 25.99%. The plaintiffs argued that the SCRA, designed to protect military personnel from financial burdens while serving, should allow them to pursue a class action lawsuit against Citibank.
However, the appeals court disagreed. Circuit Judge Paul Niemeyer, writing for the three-judge panel, explained that the SCRA doesn’t explicitly address arbitration. Therefore, the Federal Arbitration Act, which generally favors enforcing arbitration agreements, takes precedence. This compels the plaintiffs to pursue their claims individually through arbitration rather than collectively as a class.
The court did, however, instruct the North Carolina trial judge to examine the applicability of the Military Leave Act to the plaintiffs’ accounts. This separate law imposes limitations on certain interest rates and supersedes arbitration agreements. This secondary review offers a potential avenue for relief for the affected servicemembers.
Leah Nicholls, an attorney representing the plaintiffs, expressed disappointment with the ruling and indicated the possibility of seeking a rehearing. She argued that the decision contradicts the U.S. Supreme Court’s established approach to interpreting Congressional intent regarding the displacement of arbitration agreements. This suggests the legal battle may continue.
Conversely, Citigroup declined to comment on the decision. The outcome of this case has broader implications, particularly for a similar pending case against American Express in North Carolina. That case had been paused pending the appeals court’s decision in the Citibank matter.
In March 2023, the U.S. Department of Justice sided with the plaintiffs in both cases, asserting that the SCRA grants servicemembers an “unwaivable right” to pursue class actions, regardless of any prior agreements to arbitrate. This underscores the complex legal landscape surrounding the interpretation of the SCRA and its interaction with other federal laws. The appellate court’s ruling potentially undermines this interpretation.
The ruling highlights the ongoing tension between consumer protection and the enforceability of arbitration agreements, particularly concerning the rights of military personnel. The case may have lasting consequences for how financial institutions interact with servicemembers and the mechanisms available for resolving disputes.
