The Charles Schwab Corporation : UPDATE : Finra: Schwab Violating Customers' Litigation Rights
02/01/2012 | 05:37pm
--Finra says Schwab now requires customers to waive their rights to bring or participate in class action suits against firm
--Schwab filed judgment action against Finra, seeking court determination that waiver provisions are enforceable
--Finra seeks expedited hearing
(Adds information on action filed by Schwab, in the fifth through ninth paragraphs, and information from the Finra complaint, in the 10th and 11th paragraphs.)
By Lauren Pollock and Brett Philbin
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The Financial Industry Regulatory Authority has filed a complaint against Charles Schwab Corp. (SCHW), saying the discount brokerage violated Finra rules by requiring customers to waive their rights to bring class-action lawsuits against the firm.
Finra, Wall Street's self-regulator, alleged Schwab amended its customer account agreement to include a provision requiring the waiver in October 2011. Schwab sent the paperwork to 7 million customers.
The agreement also includes a provision requiring customers to agree that arbitrators wouldn't have the authority to consolidate more than one party's claims.
Finra says both provisions violate its rules concerning language or conditions that firms can place in customer agreements.
In an emailed statement, Charles Schwab said it filed a declaratory judgment against Finra and wants the court to determine that the class-action waiver provisions "are enforceable under recent U.S. Supreme Court decisions interpreting the Federal Arbitration Act and are not barred by any Finra rule."
In the action, filed in the U.S. District Court for the Northern District of California, Schwab says it added the provision in question to all of its account agreements in September 2011 following a U.S. Supreme Court decision in AT&T Mobility LLC vs. Concepcion.
The company says it's "committed to resolving customer disputes fairly and efficiently without litigation through its internal customer advocacy program or by use of FINRA Dispute Resolution."
However, it says within the resolution process, "filing fees vary with the size of claims and may be waived in the case of hardship," and it believes that a class-action waiver is, therefore, in the best interests of both its customers and its shareholders."
Schwab says it's confident the court will find Finra's attempt to prohibit class-action waivers is barred by the Federal Arbitration Act.
In other charges in the complaint Wednesday, Finra says Schwab's "violative conduct is ongoing." Additionally, Finra says the class-action waiver will "likely lead millions of Schwab customers who have received the account agreements to incorrectly believe they don't have the ability to bring or participate in class actions" against Schwab.
The complaint seeks an expedited hearing because Schwab's conduct is ongoing and the firm has continued to use account agreements containing the provisions in opening more than 50,000 new customer accounts since October 2011.
Finra said possible remedies include a fine, censure, suspension or bar from the securities industry, among other actions.
-By Lauren Pollock and Brett Philbin, Dow Jones Newswires; 212-416-2173; brett.philbin@dowjones.com
--Caitlin Nish contributed to this report.
