In February, the brokerage firm Charles Schwab won a ruling from a hearing panel of FINRA, the financial industry regulatory authority, invalidating FINRA's rule against class-action bans and allowing Schwab to use a class-action ban in its customer agreements. The panel concluded that "the amended language used in Schwab's customer agreements to prohibit participation in judicial class actions does violate FINRA rules, but that FINRA may not enforce those rules because they are in conflict with the Federal Arbitration Act," as interpreted by the U.S. Supreme Court in AT&T Mobility v. Concepcion.
Now, just three weeks after Public Citizen launched a campaign to shame Schwab into dropping its class-action ban, it has done just that -- at least for now. Here's Public Citizen's statement and here's Schwab's statement describing its decision:
SCHWAB STATEMENT ON CLASS ACTION WAIVERS
SAN FRANCISCO, May 15, 2013 — The Charles Schwab Corporation today made the following statement about class action waivers in Schwab client account agreements:
Effective immediately, Schwab is modifying its account agreements to eliminate the existing class action lawsuit waiver for disputes related to events occurring on or after May 15, 2013 and for the foreseeable future.
While the company believes that dispute resolution is best handled via FINRA arbitration, we have chosen to voluntarily remove the waiver going forward until the issue is resolved by the appropriate regulatory and/or court decisions. Given that the process will likely take considerable time to resolve, and may leave clients with a degree of uncertainty about their dispute resolution options in the meantime, we have elected to remove that uncertainty until the legal and regulatory process is completed.
To help ensure that small investors have access to pursue any claims they consider appropriate within the arbitration forum available to them, we will continue our existing policy of paying for the arbitration fees of any investor electing to pursue an arbitration claim under $25,000 against Schwab.