Sen. Al Franken, D-Minn., told the new Securities and Exchange Commission chairwoman, Mary Jo White, in a Tuesday letter to act now in preventing Wall Street brokerage firms from forcing investors into “unfair” arbitration agreements.
“Minnesotans planning for retirement or saving for their children’s college funds rely on the advice of their brokers to help them make smart investment choices,” Franken said in the letter, which was also signed by 36 other senators and House colleagues. “However, when brokers engage in fraudulent or illegal behaviors that lose investors’ savings, mandatory arbitration clauses limit investors’ ability to protect their rights under the law.”
Franken and the other lawmakers urged the SEC to use its existing authority under Section 921 of the Dodd-Frank Act to prevent mandatory arbitration clauses in broker-investor contracts.
“We are deeply concerned that the commission’s failure to respond to the dangers posed by widespread forced arbitration will weaken existing investor protections,” wrote Franken and his colleagues. “We urge the commission to act quickly to exercise its authority…to prevent this practice and protect investor rights.”
SEC spokesman John Nester said the agency declined to comment “in advance of our response to the senator, but as a general matter we share his interest in this issue.”
The lawmakers said the need for the SEC to act increased after Charles Schwab recently expanded its mandatory arbitration clauses.
“We were alarmed to see further attempts to erode investor rights when Charles Schwab, one of the country’s largest brokers, expanded the mandatory arbitration clauses in its customer agreements to include a mandatory class-action waiver clause,” the lawmakers wrote in their letter. “In this instance, Schwab argued that, in response to the Supreme Court’s interpretation of the Federal Arbitration Act (FAA) in AT&T Mobility v. Concepcion, it could include a waiver of class-action and class arbitration rights in its customer agreements.”