Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Friday, May 17, 2013

Schwab Eliminate Class Action Waiver in Customers' Agreements -- At Least For Now

As regular readers of this Blog know, Charles Schwab includes in its brokerage agreements with its customer a provision that purports to prohibit customers from bringing class actions against the firm.  This class action waiver violates FINRA rules, but recently a FINRA hearing officer ruled that FINRA could not enforce its rule because of the Federal Arbitration Act, as interpreted by the Supreme Court in AT&T Mobility v. Concepcion.  That decision is currently on appeal before the FINRA appellate body.  Yesterday, Charles Schwab issued a statement that it was modifying its account agreements to eliminate the class action waiver until the issue is resolved:

Effective immediately, Schwab is modifying its account agreements to eliminate the existing class action lawsuit waiver for disputes related to events occurring on or after May 15, 2013 and for the foreseeable future.

While the company believes that dispute resolution is best handled via FINRA arbitration, we have chosen to voluntarily remove the waiver going forward until the issue is resolved by the appropriate regulatory and/or court decisions.  Given that the process will likely take considerable time to resolve, and may leave clients with a degree of uncertainty about their dispute resolution options in the meantime, we have elected to remove that uncertainty until the legal and regulatory process is completed.

To help ensure that small investors have access to pursue any claims they consider appropriate within the arbitration forum available to them, we will continue our existing policy of paying for the arbitration fees of any investor electing to pursue an arbitration claim under $25,000 against Schwab.

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