More than three dozen lawmakers have called on the Securities and Exchange ¬Commission to end mandatory-arbitration clauses in brokerage contracts.
Providing a choice of venue for hearing claims against brokers would be fairer for investors, particularly smaller ones, Sen. Al Franken, D-Minn., wrote in a letter to the SEC sent last Tuesday.
The SEC should use the authority given to it under the Dodd-Frank law to reform arbitration clauses, he wrote.
“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, which was written by Mr. Franken and signed by 15 senators and 22 House members, all Democrats. “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.”
The legislators also asked the SEC to monitor how many brokers are including mandatory-arbitration agreements and class action waivers in client contracts.
SEC spokesman John Nester declined to comment, adding that the commission hasn't taken a position on mandatory arbitration.
AGUILAR'S SPEECH
Almost every brokerage contract contains such a provision. It isn't clear when or if the SEC will propose a rule, though it has received some comment letters.
In a speech before state securities regulators two weeks ago, SEC member Luis Aguilar urged the commission to act on its Dodd-Frank authority and end mandatory arbitration.
Controversy over compulsory arbitration spiked this year when a Financial Industry Regulatory Authority Inc. hearing panel ruled that the regulator couldn't stop The Charles Schwab Corp. from using the 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.”
The North American Securities Administrators Association Inc. has made the issue a priority. The letter adds momentum to its efforts to raise its profile on Capitol Hill.
