August 4, 2013

Bill Banning Predispute Arbitration Clauses in Broker-Dealers’ Customer Agreements Introduced into Congress

By Jill Gross

Last Friday, Rep. Keith Ellison (D-Minn) introduced the “Investor Choice Act” into the House of Representatives, a bill that proposes to ban broker-dealers, investment advisers, funding portals and municipal securities dealers from including mandatory arbitration clauses in their customer and client agreements. While Dodd-Frank explicitly authorized the Securities and Exchange Commission to ban such arbitration clauses to protect investors, fhe SEC has not yet acted on its authority and Commisssioner Walter recently stated publicly that the SEC was unlikely to do so in 2013. While I suspect this bill has little to no chance of getting passed, it may prompt the SEC to act in 2014.

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  • Investors choice is fine, has anyone considered the fact that brokerage firm employees are forced, by the government, to arbitrate their disputes with customers and their employers? Is any other group of employees forced to arbitrate such claims?

  • T. Nolan says:

    This goes in the opposite direction of where we should be going. Legislation authorizing yet more civil litigation (when the system cannot digest what it has now) is poor policy, particularly when the tradition of arbitration in the securities industry has worked so well – in fact, investors probably recover more in arbitration on equity grounds than they would with a strict application of legal principles.

  • My reaction: not another “kill arbitration bill!” My advice to the bill’s sponsors: please, please, please read my aricle “The Arbitratuion Fairness Act of 2013: a Well-Intended bu Potentially Dangerous Overreaction to a Legitimate Concern”

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