Schwab Amends its Investor PDAA

January 15th, 2013 · 1 Comment

Thanks to Securities Arbitration Alert 2013-01 from the Securities Arbitration Commentator, I learned that the broker-dealer Charles Schwab has amended the arbitration clause in its customer account agreement to remove one of the provisions that led to disciplinary action against it by FINRA Enforcement. (See my previous blog posts on the subject, here, here and here. ) The SAA reports:

Since October 2011, Charles Schwab customers have been subject to a unique provision in their customer agreements – contractual undertakings to waive participation in class actions in favor of individual arbitration of their disputes. We have reported extensively on Schwab’s “bold move” – a contractual attack on investor class actions encouraged by AT&T Mobility v. Concepcion – on FINRA’ disciplinary challenge to that action, and on Schwab’s failed effort to divert that challenge to federal court (see, e.g., SAC 2011-01 & -02). Since that defeat, things have been quiet, but Schwab, despite facing disciplinary proceedings, has not pulled the offending provisions. This week, though, Schwab customers have been informed of a change to the subsection in the Arbitration clause that is titled “Waiver of Class Action or Representative Action.” The main provision waiving the right to participate in class actions remains, but Schwab has pulled the following clause: “…and the arbitrator(s) shall have no authority to consolidate more than one parties’ claims or to proceed on a representative or class action basis.”

Schwab’s class action waiver provision is certainly more controversial than the provision barring arbitrator consolidation powers, and the amendment certainly suggests that Schwab is not removing the class action waiver from its customer agreement any time soon. Schwab may be hoping that its concession on the consolidation provision — which appeared to directly violate an explicit FINRA rule permitting such consolidation — may improve its posture in the disciplinary proceedings.

You can read my views as to the validity (or lack thereof) of the class action waiver in my recent article “Investor Protection Meets the Federal Arbitration Act.“