The Financial Industry Regulatory Authority (“FINRA”) filed a complaint against Charles Schwab & Company for violating FINRA rules when the firm amended its Customer Account Agreements to include (1) a Waiver of Class Action or Representative Action provision, and (2), language requiring customers to waive their right to bring or participate in class actions against Schwab.
According to FINRA’s complaint, Schwab mailed improper contractual amendments to over 6.8 million clients. FINRA alleged that Schwab’s “violative conduct is ongoing”, and that it will “likely lead millions of Schwab customers who have received the account agreements to incorrectly believe they don’t have the ability to bring or participate in class actions.”
FINRA stated that both provisions violate FINRA Rule 2268(d)(1), which prohibits member firms from placing any condition in a pre-dispute arbitration agreement that “limits or contradicts the rules of any self-regulatory organization.” Additionally, FINRA alleges Schwab’s class action waiver is a condition that contradicts the FINRA Code of Arbitration Procedure for Customer Disputes, Rule 12204(d), which addresses how customers can bring and participate in class actions against member firms.
In response, Schwab filed a lawsuit in the U.S. District Court for the Northern District of California in San Francisco, where the company is based, against FINRA. Schwab alleged that it added the waiver provision to all of its customers account agreements in September 2011, following the Supreme Court’s decision in AT&T Mobility LLC vs. Concepcion. In a statement, Schwab declared that it is confident that the court will find FINRA’s action is barred by the Federal Arbitration Act. Moreover, the company says that it is “committed to resolving customer disputes fairly and efficiently without litigation through its internal customer advocacy program or by use of FINRA Dispute Resolution.”