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February 21, 2013 at 10:56 AM
A Financial Industry Regulatory Authority disciplinary panel on Thursday upheld Charles Schwab’s decision to include a class-action waiver in its customer arbitration agreements. The waiver requires that all disputes between Schwab and its customers be arbitrated, and waives each party’s right to bring class-action claims against the other.
However, the panel ordered Schwab to take corrective action and ordered Schwab to pay a fine of $500,000 for “attempting to limit the powers of FINRA arbitrators to consolidate individual claims in arbitration.”
The FINRA panel stated that it had dismissed two of three causes in a February 2012 complaint against Charles Schwab & Co. regarding Schwab asking its customers to waive their rights to bring class actions against the firm.
The panel concluded that “the amended language used in Schwab’s customer agreements to prohibit participation in judicial class actions does violate FINRA rules, but that FINRA may not enforce those rules because they are in conflict with the Federal Arbitration Act (FAA).”
Schwab issued a statement the same day saying that “Schwab is pleased with the panel’s decision, which ruled in the company’s favor on the central class action waiver issue.”
The statement went on to say that Schwab “believes customers are better served through the existing FINRA arbitration process and that class-action lawsuits are a cumbersome and less effective means of resolving disputes—for both parties. Based on the panel’s favorable ruling, all customer claims must be heard in arbitration through the well-established and highly regarded FINRA arbitration forum, where matters are adjudicated more quickly and efficiently than in court proceedings.”
FINRA Dispute Resolution, Schwab continued, “runs one of the country’s largest alternate dispute resolution forums and has effective programs for both large and small cases. Filing fees vary with the size of claims and may be waived in the case of hardship. For these reasons, Schwab believes that a class-action waiver is in the best interests of both its customers and its shareholders.”
