May 16, 2013
Win! Following Public Citizen Petition, Charles Schwab Drops Class-Action Ban in Investor Contracts
Statement of Christine Hines, Consumer and Civil Justice Counsel, Public Citizen, Congress Watch Division
Bowing to public pressure created by Public Citizen, Charles Schwab Corp. announced Tuesday that it would remove an insidious provision in its investor contracts that denied its customers the ability to band together in class actions against it. We are pleased with the firm’s decision. Schwab’s move comes three weeks after Public Citizen launched a campaign asking its members and supporters to sign a petition demanding that the brokerage firm remove the ban on class actions that’s hidden in the fine print of its contracts. So far, the petition has more than 19,000 signers. In addition, many Public Citizen supporters who also are Schwab customers have told us that they spoke directly to their brokerage firm.
For more than a year, Schwab has been locked in a battle with the industry regulatory body, Financial Industry Regulatory Authority (FINRA), over the class action ban Schwab added to its contract in violation of FINRA rules. A hearing panel had ruled in favor of Schwab, permitting it to maintain the provision and citing the U.S. Supreme Court’s 2011 decision in AT&T Mobility v. Concepcion. (The case essentially permitted corporations to insert class action bans within pre-dispute forced arbitration clauses buried in consumer and employment contracts.) FINRA announced that it would appeal the hearing panel’s decision.
Schwab said it would remove the provision until “the issue is resolved by the appropriate regulatory and/or court decisions.” Even if a court ultimately rules for Schwab, Schwab should not put the class-action bans back into its investor contracts.
This is why it is crucial for the Securities and Exchange Commission to exercise its authority to conduct rulemaking and restore investors’ right to choose how to resolve disputes with financial firms. The fine print of one-sided contracts should not deny investors this critical right.
In the meantime, Schwab’s responsible decision is a significant victory for its customers and millions of ordinary investors. By speaking up, investors ensured that their ability to seek redress for losses caused by corporate misconduct would not be eliminated without a fight.