Monday, February 6, 2012

Schwab Sues FINRA RE: Class Action and Consolidated Claims

By Tim Dulaney, PhD

There has been some buzz on the blogosphere concerning the ongoing dispute between Schwab and FINRA concerning the issue of class action waivers attached to securities products.

FINRA recently alleged that Charles Schwab & Co. violated FINRA rules by including class action waivers in their customer agreements. From their press release:
FINRA's complaint charges that in October 2011, Schwab amended its customer account agreement to include a provision requiring customers to waive their rights to bring or participate in class actions against the firm. Schwab sent the amended agreements to nearly 7 million customers. 
The agreement also included a provision requiring customers to agree that arbitrators in arbitration proceedings would not have the authority to consolidate more than one party's claims. FINRA's complaint charges that both provisions violate FINRA rules concerning language or conditions that firms may place in customer agreements.
Schwab shot back and filed a declaratory judgment action in federal district court claiming that recent US Supreme Court opinions here (link opens PDF) and here (link opens PDF) override FINRA's rules concerning such waivers. Schwab has become the most recent participant in the continuing back-and-forth between financial institutions, the courts and investor advocates concerning the enforceability of class-action waivers.

We here at SLCG believe that these class action waivers fly in the face of client's rights. Futhermore, we hope that FINRA is successful in both their charges against Schwab and in defeating the litigation brought by Schwab concerning this issue.

Hat tip to the Securities Law Professor's Blog for bringing this issue to our attention.

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