NASAA supports reversing ruling that denies customer rights

By Staff | May 10, 2013 | Last updated on May 10, 2013
2 min read

The North American Securities Administrators Association has filed an amicus brief supporting FINRA’s efforts to overturn a decision by a FINRA hearing panel that allowed Charles Schwab & Company to prevent its customers from participating in class-action lawsuits.

“Charles Schwab’s attempt to unilaterally alter its account agreements to include the class action waiver is an obvious attempt by the firm to insulate itself from liability to its own clients,” says Heath Abshure, NASAA president and Arkansas Securities Commissioner. “This ruling would essentially allow broker-dealers to prohibit participation in class actions against them by their customers. That’s wrong on the merits and bad public policy.”

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NASAA’s amicus brief was filed with FINRA’s National Adjudicatory Council, the national committee that reviews initial decisions rendered in FINRA disciplinary and membership proceedings.

The Public Investors Arbitration Bar Association has also filed a related amicus. A similar brief was filed jointly today by AARP, the National Consumer Law Center and Public Justice supporting FINRA’s efforts to overturn the hearing panel’s decision.

NASAA argued that the FINRA hearing panel erred by refusing to enforce FINRA rules prohibiting the use of class action waivers in customer agreements.

“In doing so, the hearing panel ignored FINRA’s statutorily duty to enforce the organization’s rules, relied on an erroneous application of the Federal Arbitration Act, and placed investors in imminent harm by precluding their ability to seek redress for small dollar claims,” NASAA’s brief says.

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“Our interest in this case stems from our strong belief that investors should be free to join with other investors through the representative class action process to resolve claims that are too costly to bring independently,” Abshure says. “The hearing panel’s decision deprives investors of this choice through an erroneous application of the Federal Arbitration Act and should therefore be reversed.”

Read NASAA’s brief here.

Separately, on May 3, 2013, NASAA wrote to SEC Chair Mary Jo White urging her to use the authority granted to the agency in Section 921 of the Dodd-Frank Act to prohibit or impose limits on the use of mandatory arbitration clauses in broker-dealer and investment adviser customer contracts. In the letter, Abshure wrote that “it is essential” for the SEC to act given the recent decision by Schwab to expand its forced arbitration contracts to require that investors waive their right to participate in class actions.

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