Aug. 14, 2017
Public Citizen Urges SEC to Protect Investors From Rip-Off Clauses
Dodd-Frank Authorized SEC to Act
WASHINGTON, D.C. – Public Citizen is urging U.S. Securities and Exchange Commission (SEC) Chair Jay Clayton to immediately begin the process of prohibiting the use of forced arbitration clauses by entities governed by the SEC, in a letter (PDF) sent today.
Public Citizen’s letter comes after SEC Commissioner Michael Piwowar expressed support for including forced arbitration clauses in initial public offering (IPO) documents. Allowing forced arbitration and class action prohibitions by issuers would be inconsistent not only with the SEC’s statutory investor-protection mandates but also with the commission’s past actions, Public Citizen maintains.
“The SEC should protect investors by banning forced arbitration clauses and bans on class actions (‘forced arbitration clauses’) because it is difficult for investors to vindicate their rights under federal securities law absent the ability to bring a class action. The SEC’s powers to enforce prohibitions on manipulative practices and to enforce the anti-waiver provisions in federal securities law confer ample authority on the SEC to ban these insidious provisions,” the letter reads.
The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (known as “Dodd-Frank”) explicitly authorized the SEC to prohibit forced arbitration agreements related to brokers, dealers and investment-advisors. The SEC’s broad powers under securities laws already provided the agency with ample authority to protect investors against forced arbitration clauses in IPO documents, and in the past the SEC has discouraged issuers from using such clauses by suggesting that the agency would regard the practice as unlawful.
“Rip-off clauses already are in so many contracts that govern our daily lives,” said Remington A. Gregg, counsel for civil justice and consumer rights for Public Citizen’s Congress Watch division. “At a time when we should be prohibiting the use of rip-off clauses, Trump-friendly political appointees are attempting to further limit the constitutional rights of the very people they’ve sworn to protect.”
Forced arbitration clauses commonly are hidden in the fine-print of “take-it-or-leave-it” contracts. They deprive consumers of their day in court when they are harmed as a result of corporate wrongdoing. Instead, consumers are forced into rigged, secretive arbitration proceedings with no right to appeal if arbitrators ignore the facts or law. Forced arbitration clauses have become ubiquitous, appearing in the fine print terms for bank accounts, student loans, cell phones, employment agreements and even nursing home contracts.