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Client Account Agreements Can Be Modified to Ban Class Action

published February 22, 2013

By Author - LawCrossing
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( 5 votes, average: 4.3 out of 5)
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02/22/13

Charles Schwab Corp. has the rights to ban its clients from filing class-action lawsuits
On Thursday, a securities industry regulatory panel ruled that the Charles Schwab Corp. has the rights to ban its clients from filing class-action lawsuits against it following modification of agreements. Last year, after settling huge class-actions for a sum of $235 million over its YieldPlus fund, Schwab had announced modification of 8.8 million account agreements to ban class-action suits. At the same time, Schwab said it would make changes that would allow the ability of the account holders to consolidate their arbitration cases.


The ruling can have huge impact over the finance industry, because, once it Schwab is through, others cannot be far behind.

The Financial Industry Regulatory Panel that heard the Schwab case also differed with the opinions of FINRA and caused a seeming setback to that private organization. FINRA expressed disappointment with the decision and said it was going to review the decision to find out whether there were sufficient grounds to appeal.

Kevin Carrol, associate general of the Securities Industry and Financial Markets Associations told the media, “FINRA could appeal, but you have a fairly well developed decision here.”

The 48-page ruling held that the class-action ban under the given conditions is consistent with both federal law and recent interpretations of the Federal Arbitration Act by the Supreme Court.

The San Francisco-based Schwab, said in a statement – “Schwab is pleased with the panel’s decision … The company believes customers are better served through the existing FINRA arbitration rocess and that class –action lawsuits are a cumbersome and less effective means of resolving disputes – for both parties.”

For FINRA, the leading private group that regulates broker-dealers and administers arbitration panels, consolidated arbitration doesn’t seem appealing. FINRA had wanted Schwab punished and had charged the company last year for violating FINRA rules by limiting class-action and arbitration rights. However, the panel ruling on Thursday found that FINRA rules are not enforceable in this case because they conflict with the Federal Arbitration Act.

published February 22, 2013

By Author - LawCrossing
( 5 votes, average: 4.3 out of 5)
What do you think about this article? Rate it using the stars above and let us know what you think in the comments below.

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