Yesterday the SEC approved a FINRA-proposed rule change to raise the cap for Simplified Arbitration claims (i.e., paper hearings) from $25,000 to $50,000. As I wrote in a comment letter filed in support of the rule change proposal, which the SEC quoted in its approval order, the higher claim limit should “benefit investors by enhancing the efficiency and expediency with which claims could be resolved in FINRA’s arbitration forum, and by improving the environment for pro bono legal services organizations to help more investors due to the reduced time and resources involved in simplified arbitration.”

However, as expressed in the comment letter, I remain concerned about an arbitrator’s ability to resolve a customer dispute solely based on paper submissions. Disputes involving certain types of claims (e.g., fraud and suitability) require arbitrators to decide questions of witness credibility, which might be difficult to resolve based solely on written submissions. Accordingly, I recommended that FINRA amend the proposed rule to provide customer claimants the option of electing a telephonic hearing. As the SEC reported, “[i]n its Response Letter, FINRA stated that it would consider the feasibility of a telephonic hearing option. But because the availability of telephonic hearings is not directly related to the substance of the proposed rule, and parties to an arbitration proceeding currently can jointly request a telephonic hearing, FINRA stated that its consideration of telephonic hearings should not delay the Commission’s consideration of the proposed rule change. Therefore, FINRA declined to amend the proposed rule change to grant customer claimants the sole option to elect a telephonic hearing.”

I am encouraged that FINRA publicly recognized that parties can jointly request a telephonic hearing, but also urge FINRA to consider providing that option for customer claimants to elect in appropriate cases. As I will show in an article to be published later this year (in Southwestern Law Review), data I gathered in 2008 as part of the SICA Fairness Study reveals that investors’ perceptions of the fairness of arbitration are more negative in Simplified Arbitration than in live-hearing based arbitrations.