Banking and Finance Law Daily Wrap Up, CONSUMER CREDIT—7th Cir: Arbitration award reversed against USAA Savings Bank over punitive damages review failure, (Mar 23, 2026)

By Shashi Kant, BALLB, LLM

The court found that the arbitrator exceeded authority by issuing final punitive damages award without conducting contractually required post-award review.

The Seventh Circuit reversed a district court judgment confirming an arbitration award against USAA Savings Bank, holding that the arbitrator exceeded her authority by issuing a final punitive damages award without conducting the post-award review expressly required by the parties’ arbitration agreement. The court held that the arbitrator’s refusal to perform that review could not be treated as an interpretation of the contract because it disregarded clear contractual language governing punitive damages. The panel said the arbitration agreement allowed punitive damages but also required that, before any punitive damages decision became final, the arbitrator conduct a post-award review using the same procedural rights and the same standards and guidelines that would apply in a judicial proceeding in the state where the arbitration was located. The agreement further required any ruling resulting from that review to be in writing and supported by a reasoned explanation (USAA Savings Bank v. Goff, No. 25-1730 (7th Cir. Mar. 19, 2026)).

Arbitration dispute arose from credit card account closure. According to the opinion, USAA Savings Bank closed Michael Goff’s credit card account and gave him conflicting reasons for doing so. Goff then commenced arbitration under the arbitration clause in the parties’ credit card agreement, seeking both actual and punitive damages. After an evidentiary hearing, the arbitrator concluded that USAA failed to provide Goff with adequate notice after taking adverse action, as required by the Equal Credit Opportunity Act. The arbitrator found that Goff had not suffered actual damages from the account closure but awarded him $10,000 in punitive damages. The arbitrator later submitted a final award confirming the punitive damages and granting Goff’s counsel $77,428 in legal fees.

USAA sought contractually required review of punitive damages. The opinion states that, after the arbitrator issued the award, USAA filed a request for the post-award review required by the arbitration agreement. USAA argued that because the arbitrator had not conducted that review, the punitive damages award was not yet final. The arbitrator reaffirmed the punitive damages award and stated that the arbitration had been conducted under the American Arbitration Association’s Consumer Arbitration Rules, which did not permit her to “re-determine the merits of any claim already decided.” USAA then filed suit in federal district court seeking to vacate the award on the ground that the arbitrator exceeded her authority by failing to conduct the required review. The district court denied the motion and confirmed the award. Although the district court acknowledged that the arbitrator erred in not conducting the post-award review, it concluded that the error did not justify vacatur because the award still drew its essence from the arbitration agreement.

Arbitrator disregarded clear contract language. Writing for the majority, Judge Kirsch said judicial review of arbitration awards remains “extremely limited,” but emphasized that the relevant question is whether the arbitrator interpreted the contract, not whether the arbitrator interpreted it correctly. The panel held that the arbitrator exceeded her powers under Section 10(a)(4) of the Federal Arbitration Act because she ignored clear and unambiguous contractual language requiring a post-award review before any punitive damages decision could become final. According to the court, there was “no possible interpretive route” to the arbitrator’s decision to make the punitive damages award final without first conducting that review. The court said the arbitration agreement specifically required the arbitrator to conduct the post-award review and to provide a written ruling with a reasoned explanation. Because the arbitrator instead concluded that AAA rules prevented her from revisiting the punitive damages award, she failed to apply the contractual terms that controlled when the AAA rules conflicted with the agreement. The panel rejected Goff’s argument that the arbitrator was merely harmonizing the AAA rules with the contract and at most committed a procedural error. In the court’s view, the arbitrator did not interpret the contract but rather disregarded express contractual limitations on punitive damages awards. The court also rejected Goff’s reliance on the absence of a clear Illinois mechanism for the post-award review. The panel said Illinois courts do have procedures for review of interim punitive damages rulings, but added that it need not decide which procedures should apply because the arbitrator retains discretion on remand to determine the appropriate procedures.

Case remanded to original arbitrator. The panel held that the proper remedy was not to terminate the arbitration outright, but to remand for further proceedings before the original arbitrator. The panel therefore reversed the district court and remanded with instructions that the district court further remand the matter to the arbitrator for proceedings consistent with the appellate opinion. The court also denied Goff’s motion for sanctions under Federal Rule of Appellate Procedure 38, stating that USAA’s appeal had merit.

Judge: Kirsch, T., Circuit Judge.

Attorneys: Theodore C. Schultz (Lindow Stephens Schultz Moynihan & Brown LLP) for USAA Savings Bank. Alexander Darr (Darr Law) for Michael Goff.

Companies: USAA Savings Bank

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