After the U.S. Supreme Court’s controversial decision in Concepcion, there has been much debate over the rising tendency of companies to forbid their customers from bringing class actions against them. Another company has recently won another round. Charles Schwab Corp. modified their account agreements last year, prohibiting class-action lawsuits and restricting the ability of consumers to consolidate arbitration cases. This decision came after settlements of class-action lawsuits in which Schwab agreed to pay $235 million for misleading marketing of its high-interest YieldPlus money market fund between May 2006 and March 2008.
The Financial Industry Regulatory Authority’s (FINRA’s) enforcement department charged Schwab with violating its rules by restricting consumers’ class-action and arbitration rights. The FINRA hearing panel agreed that it was against the rules of the private group, which regulates broker-dealers and administers arbitration panels. However, due to the Supreme Court’s recent interpretation of the Federal Arbitration Act, the panel found that those rules are unenforceable.
While FINRA does not actually make or enforce the law, it can tell broker-dealers that, if they want to remain members, they have to abide by its “fair-play” rules. The Securities and Exchange Commission requires all broker-dealers to be members and all brokers who sell securities to be licensed by FINRA.
Of the three actions FINRA brought against Schwab, it did win won. The hearing panel decided that Schwab had violated FINRA’s rules by limiting the powers of arbitrators to consolidate individual client claims in hearings and fined Schwab $500,000 for the violation. It also ordered the company to remove that condition from its customer agreements. A spokesman for Schwab said the language has already been removed.
A FINRA spokeswoman said it is currently reviewing the decision and cannot yet comment on whether they will appeal to the National Adjudicatory Council. Plaintiffs lawyers though, have speculated that an appeal is almost certain.
Schwab has said in a statement that it is pleased with the decision. “The company believes that 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.”
Officials in the securities industry anticipate that more firms will try to revise their customer agreements after this decision.
While some have called this a significant step backwards for customers, others are not so sure. While the ruling does threaten most securities class-actions, the panel does not make the law and so this decision is unlikely to affect far-reaching law.
The skilled Chicago business attorneys at DiTommaso Lubin Austermuehle have considerable experience with both class action lawsuits and business litigation. Our attorneys can help evaluate the defenses available to protecting your business from a class action lawsuit. If you have questions about Chicago class action defense or business law, contact our office at (877) 990-4990 or (630) 333-0000 to schedule an appointment with one of our knowledgeable Chicago business lawyers.