Class Action Waiver Violates FINRA Rules

Posted on: April 28th, 2014 by Nadine Gartner

The Board of Governors of the Financial Industry Regulatory Authority (“FINRA”) has held that Charles Schwab & Co., Inc. (“Schwab”) violated FINRA rules when the firm attempted to keep investors from participating in class actions by adding waiver language to customer account agreements.

In October 2011, Schwab sent amendments to its customer account agreement to more than 6.8 million investors.  The amendments included waiver provisions that required customers to agree that any claims against Schwab be arbitrated solely on an individual basis and that arbitrators had no authority to consolidate more than one party’s claims.

The Board held that the class action waiver violated FINRA rules and that the Federal Arbitration Act does not preclude FINRA’s enforcement of its rules.  The Board further held that Schwab’s attempt to prevent FINRA arbitrators from consolidating more than one party’s claims in a FINRA arbitration forum violated FINRA rules.

Read the full decision here.