Federal Arbitration Act
Espin v. Citibank N.A.
Date: January 27, 2025
Issue: Whether the Servicemember Civil Relief Act (SCRA) displaced the Federal Arbitration Act‘s (FAA) arbitration mandate
Case Summary: In a 3-0 decision, a Fourth Circuit panel held that the SCRA does not override mandatory arbitration agreements in lenders’ contracts with military borrowers.
In September 2022, four servicemembers holding Citibank credit cards sued Citibank, alleging it violated the SCRA by imposing a “veteran penalty.” The SCRA requires lenders to limit the interest rate charged to eligible servicemembers to 6% during periods of military service. Although Citibank offered the servicemembers zero interest during active duty, Citibank increased the interest rate for servicemembers leaving active duty.
Citibank moved to compel arbitration and stay (pause) the lawsuit. Citibank contended that each of the servicemembers received notice of an arbitration agreement. Under the FAA, if a party that signed an agreement containing an arbitration clause tries to sue rather than seeking arbitration, the other party can enforce the arbitration by filing a motion. Citibank claimed the servicemembers received notice of an arbitration agreement. The SCRA provides, however, that servicemembers may, in “civil actions” pursue collective actions regardless of “previous agreement[s] to the contrary.” The servicemembers argued the Military Lending Act (MLA) prohibits arbitration here, and the MLA’s anti-arbitration provisions apply each time a consumer uses a credit card. According to the servicemembers, this qualifies as a new extension of credit under the MLA. The district court denied Citibank’s motion to compel arbitration, and Citibank appealed the district court’s decision.
ABA filed a coalition amicus brief supporting Citibank, arguing the Fourth Circuit should maintain the Supreme Court’s demanding standard for discerning whether a federal statute displaces the FAA. The FAA requires courts to strictly enforce arbitration agreements because of arbitration’s many advantages. This mandate applies even when a plaintiff raises statutory claims unless Congress explicitly states otherwise. For decades, Supreme Court precedent has held that a statute can override arbitration only if it clearly and expressly precludes it. ABA also argued the district court’s lax standard for overriding the FAA would undermine Congress’s effort to promote arbitration. Finally, ABA argued the servicemembers’ misreading of the MLA would make the credit card market unworkable.
On appeal, the panel reversed and remanded, concluding the SCRA does not prohibit the enforcement of arbitration agreements in credit card contracts under the FAA. To begin, the panel noted the FAA promotes “a liberal federal policy favoring arbitration agreements” and requires courts to honor arbitration agreements unless “overridden by a contrary congressional command.” Yet, in the SCRA, the panel found no such command. The SCRA’s class action provision allows a person to file a class action but does not mandate it or prohibit arbitration. As explained by the panel, “the provision is permissive,” and “does not prohibit the person from resolving a SCRA claim in another forum, such as the arbitral forum.” The panel found that allowing the SCRA claims to proceed in forums other than federal court aligns with Supreme Court precedent, which holds that federal statutory remedies do not override arbitration agreements unless explicitly stated. According to the panel, the SCRA’s legislative history shows that Congress considered a prohibition on arbitration of SCRA claims without mutual consent in the 2020 National Defense Authorization Act but declined to include this prohibition.
On the MLA, the panel acknowledged that it contains an express prohibition on arbitration. Still, the panel noted that the district court had not decided whether the MLA applies. The parties disputed whether a bank “extends consumer credit” to a customer when a plaintiff first opens a credit card account or each time a customer makes purchases on their credit cards. The court remanded the MLA claims for further determination by the district court.
Bottom Line: The panel instructed the district court to compel arbitration on all claims except those brought under the MLA; determine whether the MLA applies to the plaintiffs’ credit card accounts; and resolve any other issues that the parties might raise regarding those MLA claims if necessary.
Documents: Opinion
