No more class actions against stockbrokers, but collective actions okay in arbitration?

March 22, 2013 by

Stocks and sharesA Financial Industry Regulatory Authority (FINRA) hearing panel dismissed part of a claim against Charles Schwab Corp. (SCHW), saying the regulator can’t prevent the discount brokerage from requiring its customers to waive their rights to participate in class action lawsuits.

Schwab had amended its customer arbitration agreement in September 2011 to include a class action waiver provision, which requires that all disputes between Schwab and its customers be arbitrated. But FINRA claimed its rules prohibit the use of class action waivers by brokerage and investment banking firms.

However, the hearing panel ruled Schwab’s provision does violate FINRA rules, but the regulator can’t enforce them because they are in conflict with the federal arbitration laws.

Charles Schwab said in a statement it was pleased with the decision and added that it believes customers are better served through the existing FINRA arbitration process as class action lawsuits are a less effective means of resolving disputes.

The panel also determined that Schwab attempted to limit the powers of FINRA arbitrators to consolidate individuals’ claims in arbitration, in violation of its rules, and that federal arbitration law doesn’t prohibit the grouping of such cases. As a result, Schwab was ordered to remove the language in question and FINRA imposed a fine of $500,000.

Steve Larson
An experienced trial lawyer who handles both hourly and contingent fee cases, Steve has expertise in class actions, consumer cases, antitrust litigation, securities litigation, corporate disputes, intellectual property disputes, unfair competition claims, employment matters, and disputes involving family wealth. Steve regularly represents individuals and businesses in federal and state court and has obtained class-wide recovery in multiple class actions. A veteran practitioner, Steve's clients value his creative approach to resolving complex litigation matters.

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