State securities regulators have also joined the fight to end mandatory arbitration clauses in brokerage contracts. The regulators are putting pressure on the Securities and Exchange Commission to end the practice. The regulators urged the SEC to utilize the power mentioned above in the Dodd-Frank financial reform law to end or restrict the compulsory arbitration provisions included in almost every brokerage agreement with clients. In the letter, A. Heath Abshure, the Arkansas Securities Commissioner, who also serves as NASAA president, wrote:
The decision by Charles Schwab & Company to include these class-action waivers in the arbitration provisions of its customer contracts is yet another example of the pernicious effects of mandatory arbitration clauses. Now, more than ever, it is essential that the SEC use its authority to insure that investors have meaningful remedies and a choice of forums in which to resolve disputes with broker-dealers and investment advisers. Charles Schwab’s attempt to unilaterally alter its account agreements to include the class action waiver is an obvious attempt by the firm to insulate itself from liability to its own clients, which clearly violates public policy and may further violate Charles Schwab’s regulatory duty to observe high standards of commercial honor and just and equitable principles of trade.
Abshure points out that Schwab’s move on class-action lawsuits was an attempt to “flaunt” Financial Industry Regulatory Authority (FINRA) rules. Schwab claims that customers are better off using arbitration than going through the court system to settle claims. Anybody who believes that spin has never dealt with mandatory, binding arbitration.
Source: reuters.com and investmentnews.com
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