Citibank Interest Rate Increases for Returning Servicemembers Amounts to ‘Veteran Penalty,’ Class Action Says

New to ClassAction.org? Read our Newswire Disclaimer

A proposed class action alleges Citibank, N.A. has systematically deprived servicemembers of the benefits to which they’re eligible under the federal Servicemembers Civil Relief Act (SCRA), including by asking for unnecessary additional documentation and imposing certain interest and fee increases. 

The 34-page lawsuit says that although Citibank heavily markets itself as a bank dedicated to servicemembers, veterans and their families, including by offering a zero-percent interest rate during and for a year after active duty, the institution has nevertheless erected “additional obstacles” between eligible servicemembers and their SCRA benefits. 

For one, Citibank has denied servicemembers benefits “under the guise of needing additional documentation,” even after an eligible servicemember has requested SCRA benefits and provided sufficient paperwork to qualify, the suit says. 

When Citibank does provide a reduced interest rate to servicemembers, the lawsuit continues, those benefits are often “illusory.” According to the complaint, the bank “retroactively takes back this benefit” by imposing an interest rate penalty on servicemembers’ active balances once they leave active duty and return to civilian life.

“This ‘veteran penalty’ is carried out by Citibank imposing certain interest and fee increases only on returning servicemembers,” the filing states. “No other customers are subject to these interest and fee penalties.” 

By imposing what the complaint calls a “veteran penalty” on only SCRA recipients, Citibank “creates the illusion” of compliance with the law without actually helping shoulder servicemembers’ financial burdens, the case alleges, adding that the bank’s zero-interest-rate promise is also false in light of the apparent veteran penalty.

By increasing interest rates on servicemembers’ and veterans’ outstanding balances, Citibank recoups part of the cost of providing interest rate benefits under the SCRA, the suit summarizes. 

“The imposition of the veteran penalty is not only a violation of the SCRA and a breach of contract, it violates federal law specifically designed to prevent banks from creating such debt traps. The veteran penalty is carried out by Citibank illegally increasing interest and fees on outstanding balances. This is an unfair and deceptive practice which has been outlawed in our Nation since 2009, when Congress passed the Credit CARD Act of 2009.”

The lawsuit scathes that Citibank’s failure to comply with the SCRA “undermines our nation’s commitment to servicemembers and veterans,” who often must rebuild their lives upon becoming civilians again and “are uniquely vulnerable to Citibank’s veteran penalty,” per the suit. 

“These veterans are already subject to intense emotional, familial, and financial stress, and Citibank’s veteran penalty illegally and immorally forces veterans into financial stress,” the case states. “It violates the very purpose of the SCRA’s forgiveness requirement, which is to prevent veterans from experiencing financial distress upon their return from active duty.” 

The SCRA is a federal law that protects soldiers, sailors, airmen, marines, coast guardsmen and commissioned officers in the Public Health Service and National Oceanic and Atmospheric Administration from being sued while on active duty and for up to one year after active duty. The law provides certain protections to servicemembers in the event that legal or financial transactions adversely affect their lives during military or uniformed service. 

Among other things, the SCRA guarantees that all debts incurred by a servicemember before being called to active duty are reduced to a six-percent interest rate, from the date deployment orders are received through the ensuing active-duty period, and requires financial institutions to permanently forgive interest above six percent, the complaint explains. 

The lawsuit looks to cover all persons who requested and/or received reduced interest and/or fee benefits from Citibank on an interest-bearing obligation because of an obligor’s military service, excluding those who have executed a release of the rights claimed in the complaint. 

Get class action lawsuit news sent to your inbox – sign up for ClassAction.org’s free weekly newsletter here.