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A number of lawmakers want an end to mandatory arbitration clauses in brokerage contracts and are calling on the Securities and Exchange Commission (SEC) to use its authority under the Dodd-Frank financial law to make the necessary reforms.
Spearheaded by Sen. Al Franken ( D-Minn.), a group of 37 lawmakers said in a recent letter to SEC Chairman Mary Jo White that providing a choice of venue for hearing claims against brokers would be fairer for investors, particularly smaller ones.
“To our disappointment, in the almost three years since the Dodd-Frank Act’s enactment, the commission has largely disregarded this important mandate,” states the letter. “The time is ripe for the commission to act under [Dodd-Frank] to protect the investing public and prevent further abuse of forced arbitration contracts.”
As reported yesterday by Investment News, the legislators also want the SEC to monitor how many brokers are including mandatory arbitration agreements and class action waivers in their client contracts.
It’s not clear when or if the SEC will propose a rule. In a speech before state securities regulators earlier this month, SEC member Luis Aguilar urged the SEC to act on its Dodd-Frank authority and end mandatory arbitration.
The issue of compulsory arbitration has taken on a life of its own after a Financial Industry Regulatory Authority (FINRA) arbitration panel ruled that the regulator couldn’t stop The Charles Schwab Corp. from using arbitration agreements to prohibit clients from engaging in class actions.
“We are deeply concerned that the commission’s failure to respond to the dangers posed by widespread forced arbitration will weaken existing investor protections,” the lawmakers wrote. “Given the uncertainty created by the recent FINRA decision, we urge the commission to act quickly to exercise its authority under [Dodd-Frank] to prevent this practice and protect investor rights.”