By Sarah N. Lynch
WASHINGTON, April 30 (Reuters) - A group of 37 federal
lawmakers urged U.S. securities regulators to prohibit Wall
Street brokers from forcing customers to sign away their legal
right to sue.
"If arbitration offers investors an efficient forum to
resolve disputes, as some argue, investors may choose that
option - but they should be given the choice," the lawmakers
wrote in a letter to Securities and Exchange Commission Chair
Mary Jo White on Tuesday.
Brokerages typically require customers to sign pre-dispute
arbitration agreements when opening their accounts. Under such
agreements, disputes between a brokerage and a customer go to
arbitration; customers are prohibited from suing in court.
The agreements have also been widely used by other types of
firms, including credit card companies, who say they help reduce
legal costs and prevent frivolous litigation.
Critics say the agreements erode customers' legal rights and
often result in arbitration rulings against customers.
The 2010 Dodd-Frank Wall Street reform law gives the SEC the
authority to scale back or prohibit the use of arbitration
agreements, but the agency has not exercised that power.
State securities regulators went to Capitol Hill earlier
this month to lobby on the issue and help gather signatures for
the letter to White.
The issue came into the spotlight recently after Charles
Schwab Corp expanded the mandatory arbitration clauses
in its customer contracts to include class action waivers.
The Financial Industry Regulatory Authority tried to fight
the Schwab move by filing a disciplinary action, saying the
class action waiver violated its rules.
But a hearing panel upheld Schwab's measure in February.
FINRA is appealing the ruling to the National Adjudicatory
Council, a FINRA appellate body that reviews disciplinary
In the letter to White, the lawmakers said they were alarmed
by the Schwab case and said it should be a catalyst for the SEC
"We are deeply concerned that the commission's failure to
respond to the dangers posed by widespread forced arbitration
will weaken existing investor protections," they wrote.
"Given the uncertainty created by the recent FINRA decision,
we urge the commission to act quickly to exercise its authority
... to prevent this practice and protect investor rights."
The lawmakers signing the letter, all of them Democrats or
Independents, were led by Democratic Senator Al Franken of
Minnesota. Whether the letter will carry weight with the SEC
remains to be seen. White was sworn in as SEC chair earlier this
month and has not yet publicly discussed many of her policy
Earlier this month, one SEC commissioner, Luis Aguilar,
called for the SEC to take steps to scale back or limit the use
of mandatory arbitration agreements.
"We need to support investor choice," Aguilar, a Democrat,
said in a speech before the North America Securities
Administrators Association, a group of state regulators.
Among the senators signing the letter to White were
Massachusetts Democrat Elizabeth Warren and Ohio Democrat
Among the U.S. House members signing it were Democrat Ed
Markey of Massachusetts and Democrats John Conyers, Jr. and
Chris Van Hollen, both of Maryland.