A recent change to Charles Schwab Corp. fine print keeps customers from joining class action lawsuits, and all regulators can do is beg the brokerage not to make the change.
Massachusetts Secretary of the Commonwealth, William F. Galvin, is urging Charles Schwab to reconsider the decision, and today sent a “rebuke” to Schwab, and a plea to investors to “vehemently object to any change in their rights to participate in class actions.”
Schwab’s new customer arbitration agreement requires customers to waive the right to bring or join civil class action lawsuits against the firm. Recently, the Financial Industry Regulatory Authority (FINRA) ruled Schwab had violated rules prohibiting firms from preventing customers from civil class actions. However, FINRA also said it was powerless to enforce its longstanding rule because it conflicts with the Federal Arbitration Act.
Schwab argues its customers are better served by the FINRA arbitration process than by filing class action suits in civil court. In his letter, Galvin calls that argument “disingenuous,” and says the decision “is akin to giving every rogue broker-dealer the green light to steal from their customers in small dollar amounts.”
A Schwab spokesman issued the following statement: “We believe the evidence is overwhelming that investors – large and small – are better served through arbitration than class actions, where the plaintiff’s lawyers reap the lion’s share of settlements to the detriment of the investor.”
Galvin has also written to the U.S. Securities and Exchange Commission asking it to use its rulemaking powers under the Dodd-Frank act to stop firms from forcing customers to waive their right to file class action suits.
Galvin is asking Schwab, “as a good corporate citizen,” to reconsider the arbitration clause.
