In a move that has rippled through the securities industry, Charles Schwab has retracted their waiver of rights by clients of class-action lawsuits stipulated in their account agreements. Schwab explained that it would be revising the agreements to reflect this waiver retraction for "events occurring on or after May 15, 2013 and for the foreseeable future." The waiver provision has been in place since September 2011 in Schwab's client agreements, and it requires that every dispute between Schwab and a customer must be brought into arbitration.
Schwab's class-action policy was first contested in 2012 by the Financial Industry Regulatory Industry (FINRA), who brought together an internal hearing panel to deliberate the legitimacy of this policy, arguing that Schwab is in violation of FINRA rules. In February 2013, however, the FINRA panel voted that the agency could not bar Schwab from including the waiver in client agreements, stating that Schwab is in the right under the Federal Arbitration Act. FINRA is currently in the process of appealing this decision to the National Adjudicatory Council (NAC), the agency's internal appeals board, with the new case to be heard in September.
Schwab's cautious shift in the face of pending litigation may offer a small reprieve from criticism, but as the Public Investors Arbitration Bar Association (PIABA), the American Association of Retired Persons (AARP), and the North American Securities Administrators Association (NASAA) continue to stack their support on the side of FINRA, Schwab's class-action client waiver debate will likely persist for months, if not years, to come. This case, therefore, serves as a prime illustration of the importance in being accurate and precise with changes in language and rules proposed to company account agreements. Firms should review their agreements regularly and consider carefully not only applicable regulations, but also the possible repercussions of edits and additions made to these essential documents.
For more information, or for assistance on other compliance topics, please contact us at (619) 278-0020, or email us at firstname.lastname@example.org.