It’s Law Day, everyone! Actually, it’s May Day. Law Day was a fairly recent Cold War-era creation by a very paranoid United States who thought the whole Maypole/flower basket thing had been taken over by communists. But whatever. We’ll take it.
For Law Day, we would like to honor those who actually respect our legal system and want to free it from the clutches of corporate wrongdoers. And in fact, we found some yesterday. In fact, we found 37 members of the U.S. House and Senate, led by Senator Al Franken, who yesterday, wrote a powerful letter to new Securities and Exchange Commission Chair Mary Jo White saying:
"We are deeply concerned that the Commission's failure to respond to the dangers posed by widespread forced arbitration will weaken existing investor protections.… We urge the Commission to act quickly to exercise its authority...to prevent this practice and protect investor rights."
The lawmakers are urging “U.S. securities regulators to prohibit Wall Street brokers from forcing customers to sign away their legal right to sue” via forced arbitration clauses with class action bans. (See more about the problems with forced arbitration and class action bans here.)
Notes Reuters, “Brokerages typically require customers to sign pre-dispute arbitration agreements when opening their accounts. Under such agreements, disputes between a brokerage and a customer go to arbitration; customers are prohibited from suing in court.” Say the lawmakers:
[T]he SEC should use the authority given to the agency under the Dodd-Frank financial law to reform arbitration clauses.
“To our disappointment, in the almost three years since the Dodd-Frank Act's enactment, the commission has largely disregarded this important mandate.… The time is ripe for the commission to act under [Dodd-Frank] to protect the investing public and prevent further abuse of forced arbitration contracts.”
The legislators also asked the SEC to monitor how many brokers are including mandatory arbitration agreements and class action waivers in their client contracts.
Reuters also notes,
The issue came into the spotlight recently after Charles Schwab Corp expanded the mandatory arbitration clauses in its customer contracts to include class action waivers.
The Financial Industry Regulatory Authority tried to fight the Schwab move by filing a disciplinary action, saying the class action waiver violated its rules.
But a hearing panel upheld Schwab's measure in February.
FINRA is appealing the ruling to the National Adjudicatory Council, a FINRA appellate body that reviews disciplinary decisions.
In the letter to White, the lawmakers said they were alarmed by the Schwab case and said it should be a catalyst for the SEC to act.…
Earlier this month, one SEC commissioner, Luis Aguilar, called for the SEC to take steps to scale back or limit the use of mandatory arbitration agreements.
Aguilar, who in his speech said “allowing investors to take their legal claims to court would 'enhance investor protection and add more teeth to our federal securities laws,'” isn’t the only regulatory official concerned about this arbitration practice. About 17 members of the North American Securities Administrators Association earlier “conducted meetings with more than 40 lawmakers, delivering the same message: That investors should be allowed to go to court to settle a grievance against their broker.”
Meanwhile, Public Citizen has begun a petition drive aimed specifically at Charles Schwab, asking people to “Stand up to Chuck” and "to remove from its terms for investors the forced arbitration clause and the ban on joining together in class actions. Schwab should honor its customers’ rights and end its shameful fight against the Financial Industry Regulatory Authority."
If you do nothing else to honor Law Day today, sign Public Citizen's petition! And while you are at it, don't forget to thank Senator Franken, whose record opposing forced arbitration has been truly inspiring!