More on FINRA’s Ruling in the Schwab Class Action Waiver Case

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I blogged yesterday (here) about FINRA’s Board of Governors’ Decision finding that Schwab violated FINRA’s rules by inserting a class action waiver in the PDAA in its customer agreement.  A few additional aspects of the decision are worth mentioning.

First, FINRA’s Enforcement Department appealed the lower hearing panel’s adverse ruling to FINRA’s National Adjudicatory Council (NAC), the body that typically hears appeals from Disciplinary Hearing Panel rulings.  Yet, the Board of Governors, not NAC, issued the decision.  What happened?

As my colleague and co-author Professor Barbara Black explained to me, under FINRA rule 9349, NAC submits its proposed decision to the Board of Governors, which almost always becomes final without Board action.  The Board can, however, under rule 9351, call a proposed decision for review and affirm, modify or reverse the proposed decision and/or its sanctions.  We both wonder whether NAC’s proposed decision differed in any material way from the decision ultimately released by the Board of Governors.  I can only surmise that, if the Board of Governors had agreed with NAC’s proposed decision, it wouldn’t have taken the action that it did.

Second, simultaneous with the issuance of the decision, Schwab entered into a Letter of Acceptance, Waiver and Consent (AWC) with FINRA, settling the enforcement action by consenting to a $500,000 penalty and agreeing not to appeal the decision further.  Thus, the AWC ends the matter, and no court will get to rule on the important legal issues arising under the FAA, at least in this case.  I can only wonder why Schwab finally threw in the towel, after vigorously fighting the enforcement action for more than two years. I suspect the negative publicity Schwab received from its unilateral, anti-investor legal maneuver (in inserting the class action waiver in the first place) proved too much for the business people to accept.  Is this General Mills redux?

Perhaps public pressure will, in the end, be the only weapon that consumers and investors have to force companies to put more customer-friendly arbitration clauses in their consumer contracts.  Perhaps ADR folks should initiate the Occupy Arbitration movement?

2 thoughts on “More on FINRA’s Ruling in the Schwab Class Action Waiver Case”

  1. These wealthy corporations are always going to find a way around the law. Too many “loop holes” exist and it seems you can get all the justice you can afford.

  2. These large companies, like Schwab, will pull whatever legal maneuvers that we allow. Public pressure, however, can affect change and usually they tonnage of straws that shatters the camel’s back.

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