4th Circuit Holds that Servicemembers’ Civil Relief Act Does Not Prohibit Mandatory Arbitration

In a putative class action brought by military members who had recently left active-duty service against a national bank, the Fourth Circuit Court of Appeals held that general protections under the Servicemembers’ Civil Relief Act (SCRA) did not prohibit enforcement of the mandatory arbitration provision in their credit card agreements with the bank. 

The plaintiffs sued for, among other claims, violations of the SCRA and the Military Lending Act (MLA), which both provide financial protections for servicemembers, such as setting an interest rate limit on credit card balances.  The plaintiffs claimed that the bank’s decision to charge them its standard interest rate — which it had not been charging them while on active duty — after they exited active duty violated the SCRA and the MLA.  The bank subsequently moved to compel arbitration based on a provision in its cardholder agreement that mandated arbitration.  The district court denied the bank’s motion.  The district court reasoned that, although “the SCRA is silent as to arbitration specifically, it was nonetheless amended to codify the unwaivable right of servicemembers to bring and participate in class actions . . . notwithstanding any previous agreement to the contrary.”

The court of appeals reversed the district court’s denial of the bank’s motion to compel arbitration.  The court held that, because the SCRA is silent as to arbitration, it does not contain “a clearly expressed congressional intention,” as Supreme Court precedent requires, to supersede the Federal Arbitration Act’s (FAA’s) dictate that arbitration agreements be enforced. 

The court of appeals also noted that the plaintiffs argued that the MLA, on the other hand, contains a provision that explicitly overrides agreements to arbitrate.  Still, given that the district court never reached the issue of whether the MLA was applicable to the plaintiffs’ claims, the court of appeals remanded the matter for the district court to analyze this issue in the first instance.