Citibank Can Force Military Personnel to Arbitrate Interest Rate Claims, Court Rules

Citigroup has won a legal victory, as a federal appeals court has ruled that the company can force military personnel to arbitrate claims related to high interest rates charged on credit card balances after their return to civilian life.

Background

Under the Servicemembers Civil Relief Act (SCRA), military personnel are typically protected from certain burdens, including mortgage foreclosures and default judgments, while serving their country. However, the Fourth Circuit Court of Appeals in Richmond, Virginia, ruled that the SCRA does not override the Federal Arbitration Act, which requires disputes to be resolved through arbitration.

Citibank's Actions

Citibank began charging civilian interest rates on card balances accumulated by military personnel during active duty, when rates were capped at 6%. One plaintiff, Army Sergeant Jeremy Bell, saw his rate increase to 25.99%.

Plaintiffs' Arguments

The plaintiffs argued that the SCRA prevents arbitration agreements from being enforced against military personnel. However, the court found that the SCRA does not explicitly address arbitration, leaving the Federal Arbitration Act as the governing law.

Court's Decision

The appeals court panel ruled that the plaintiffs must individually arbitrate their disputes. The panel also directed the North Carolina trial judge to review whether the federal Military Leave Act overrides the arbitration agreements in this case.

Reaction from Plaintiffs

The plaintiffs' lawyer, Leah Nicholls, expressed disappointment with the decision. She argued that it conflicts with the Supreme Court's interpretation of congressional intent regarding arbitration agreements.

Citigroup's Response

Citigroup declined to comment on the ruling.

Class Actions and Similar Cases

Class actions allow plaintiffs to seek higher recoveries at lower costs than individual arbitration claims. A similar case is pending against American Express in North Carolina, which has been put on hold pending the appeals court's ruling.

Government Position

In March 2023, the U.S. Department of Justice sided with the plaintiffs, arguing that the SCRA provides servicemembers with an "unwaivable right" to pursue class actions.

Case Details

The case is Espin et al v Citibank NA, 4th U.S. Circuit Court of Appeals, No. 23-2083.