In a recent ruling, the 4th U.S. Circuit Court of Appeals in Richmond, Virginia, overturned a trial judge's decision allowing Citigroup to compel military personnel to arbitrate claims concerning allegedly excessive interest rates charged by its Citibank unit on their credit card balances upon returning to civilian life. The court found that although the Servicemembers Civil Relief Act (SCRA) aims to protect servicemembers from various financial burdens during active duty, it did not explicitly prohibit arbitration enforcement as per federal law.
The plaintiffs, including Army Sergeant Jeremy Bell, had challenged Citibank for switching their interest rates from the capped 6% during active duty to significantly higher rates like 25.99% post-transition. The appellate panel, led by Circuit Judge Paul Niemeyer, emphasized that since the SCRA remains silent on arbitration matters, the Federal Arbitration Act necessitated individual arbitration of disputes.
The panel suggested that the trial judge review whether the federal Military Leave Act, which addresses rate caps and arbitration agreements, applies to the plaintiffs' accounts. The lawsuit, closely monitored for its implications on group actions, triggered a response from Leah Nicholls of Public Justice, indicating consideration of seeking a rehearing due to perceived conflict with U.S. Supreme Court interpretations of Congress' stance on arbitration agreements.
Despite potential rehearing efforts, Citigroup refrained from commenting on the matter. Concurrently, a parallel case involving American Express awaits resolution pending the court's decision in North Carolina. The U.S. Department of Justice has intervened in both cases affirming servicemembers' right to pursue class actions under the SCRA.
This legal development echoes the broader consumer protection aims supported by then-President Joe Biden and underscores ongoing debates surrounding arbitration clauses in financial agreements.