Citigroup Arbitration Ruling

By Jonathan Stempel

NEW YORK (Reuters) – Citigroup (NYSE:C) can compel military personnel to arbitrate claims related to unfair interest rates charged on credit card balances post-active duty, ruled a federal appeals court panel on Monday.

The decision by the 4th U.S. Circuit Court of Appeals in Richmond, Virginia, overturned a trial judge’s ruling, indicating that Congress did not intend for the Servicemembers Civil Relief Act (SCRA) to negate the enforcement of arbitration agreements found in federal law.

Originating from the Civil War era, the SCRA provides certain protections for military personnel against mortgage foreclosures, default judgments, and other challenges during their service.

Four plaintiffs sought class action status against Citibank after discovering that the bank was applying civilian interest rates, which are higher than the capped rates of 6% for balances accrued during active duty. Army Sergeant Jeremy Bell’s rate increased to 25.99%, as documented.

Circuit Judge Paul Niemeyer stated for the panel of judges that the SCRA did not address arbitration, and therefore the Federal Arbitration Act necessitates that the plaintiffs resolve disputes on an individual basis.

The panel has asked the North Carolina trial judge to examine whether the federal Military Leave Act—which limits interest rates and can override arbitration agreements—applies to the plaintiffs’ credit card accounts.

Leah Nicholls, an attorney from the nonprofit Public Justice representing the plaintiffs, mentioned the possibility of a rehearing due to the conflict with past U.S. Supreme Court interpretations regarding Congress’ intentions about arbitration agreements.

Citigroup, headquartered in New York, has opted not to comment on the matter.

Class actions enable groups of plaintiffs to pursue potentially greater recoveries at a minimized cost compared to arbitration claims.

A similar case against American Express (NYSE:AXP) is currently awaiting the appeal court’s ruling before proceeding in North Carolina.

In March 2023, the U.S. Department of Justice expressed support for the plaintiffs, claiming the SCRA provides servicemembers with an “unwaivable right” to pursue class actions despite any arbitration agreements.

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