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House Panel Passes Bill to Prohibit BDs, Advisors From Requiring Arbitration

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What You Need to Know

  • Investor Choice Act stops firms from requiring customers to resolve their claims through arbitration instead of class actions.
  • The Empowering States to Protect Seniors from Bad Actors Act moves the Senior Investor Protection Grant Program to the SEC.
  • Another bill would subject SPACs to liability for making false or misleading forward-looking statements.

The House Financial Services Committee passed a series of bills late Wednesday regarding pre-dispute mandatory arbitration, protecting seniors and reining in fees paid to sponsors of special-purpose acquisition companies.

The Investor Choice Act, H.R. 2620, which was introduced by Rep. Bill Foster, D-Ill., passed by a 27-23 vote and prohibits broker-dealers and investment advisors from including pre-dispute binding mandatory arbitration clauses in their customer agreements.

House Financial Services Committee Chairwoman Maxine Waters, D-Calif., said Wednesday during the markup that the Investor Choice Act corrects “long-standing and deeply unfair practices of forcing customers to resolve their claims through arbitration instead of as part of a class action.”

The Financial Services Committee, she said, “will continue to focus on protecting retail investors as we recover from the pandemic.”

Also approved by the committee Wednesday was the Empowering States to Protect Seniors from Bad Actors Act, H.R. 5914, which would move responsibility for administering the Senior Investor Protection Grant Program established by Section 989A of the Dodd-Frank Act from the Consumer Financial Protection Bureau to the Securities and Exchange Commission.

Introduced by Rep. Josh Gottheimer, D-N.J., the bill, according to Waters, creates “a grant program within the Securities and Exchange Commission to bolster the ability of state securities watchdogs to protect seniors and their retirement savings.”

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The bill sets up an interdivisional task force within the SEC to review grant applications and oversee the administration of the program.

The committee also passed H.R. 5910, the Holding SPACs Accountable Act and H.R. 5913, the Protecting Investors from Excessive SPACs Fees Act.

H.R. 5910 was introduced by Rep. Michael San Nicolas, D-Guam, and would exclude a special purpose acquisition company, or SPAC, from a safe harbor for forward-looking statements, subjecting SPACs to liability for making false or misleading forward-looking statements. It passed the committee by a 27-23 vote.

H.R. 5913, introduced by Rep. Brad Sherman, D-Calif, passed by a 29-23 vote and would authorize the SEC to require disclosures by SPACs.

“SPACs that do not provide the required disclosures and award high levels of promote — a type of a compensation arrangement — to the sponsor of the SPAC, would be prohibited from having their securities marketed and sold to retail investors by financial professionals,” according to the bill.