Summary:
The Fourth Circuit Court of Appeals reversed a district court decision that denied Citibank’s motion to compel arbitration in a class action lawsuit brought by military service members. The plaintiffs alleged Citibank violated the Servicemembers Civil Relief Act (SCRA) by charging standard civilian interest rates on credit card balances accrued during active duty once they left the military. Citibank argued that the plaintiffs had agreed to arbitrate disputes on an individual basis under their credit card agreements.
The district court ruled that the SCRA’s provision allowing service members to participate in class actions “notwithstanding any previous agreement to the contrary” precluded enforcement of the arbitration agreements. The Fourth Circuit disagreed, holding that the SCRA does not explicitly override arbitration under the Federal Arbitration Act (FAA) and that arbitration must be enforced unless Congress clearly states otherwise. The court noted that Congress knows how to override arbitration, as seen in the Military Lending Act (MLA), which expressly prohibits arbitration for certain financial agreements.
The court remanded the case with instructions to compel arbitration for all claims except those brought under the MLA. It also directed the district court to determine whether the MLA applies, as it only began covering credit card accounts in 2017, and Citibank argued that the plaintiffs’ accounts predated that change. The ruling reinforces the FAA’s strong presumption in favor of arbitration unless a federal statute explicitly prohibits it.
Commentary:
When even military service members are prohibited from class action and compelled to impractical arbitration, which is intended to preclude systemic change, it starts to become clear the extent of control held by the financial services industry.
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