graphic cartoon of a blank contractThe United States House Financial Services Committee recently passed the Investor Choice Act, H.R. 2620. The Investor Choice Act, introduced by Representative Bill Foster, would prohibit broker-dealers, investment advisers, and others from including mandatory arbitration clauses in their customer agreements. H.R. 2620 would also prohibit bans on class action suits in these customer agreements. The bill includes language making it retroactive, meaning if the bill becomes law, any customer agreement in effect before then that violates these prohibitions would be void. The full text of the bill is available here:  Text – H.R.2620 – 117th Congress (2021-2022): Investor Choice Act of 2021 | Congress.gov | Library of Congress

Findings in Section 2 of H.R. 2620 include, “Issuers, brokers, dealers, and investment advisers hold powerful advantages over investors, and mandatory arbitration clauses, including contracts that force investors to submit claims to arbitration or to waive the right of investors to participate in a class action lawsuit, leverage those advantages to severely restrict the ability of defrauded investors to seek redress,” and “Investors should be free too—(A) choose arbitration to resolve disputes if they judge that arbitration truly offers them the best opportunity to efficiently and fairly settle disputes; and (B) pursue remedies in court should they view that option as superior to arbitration.”  No Republicans joined the seven Democrats who cosponsored the bill. 

check mark image with workersOregon Senator Jeff Merkley and U.S. Representative Bill Foster of Illinois introduced the Investor Choice Act earlier this month. The bill would prohibit broker dealers and investment advisors from forcing investors to agree to mandatory arbitration. The bill also prevents brokers dealers and investment advisors from forcing investors to waive the right to bring a class action lawsuit. The Senate’s version of the bill is available here

The North American Securities Administrators Association (NASAA) and Public Investors Advocate Bar Association (PIABA) endorsed the legislation. SEC Commission Chairman Gary Gensler said during his confirmation hearing that investors should be able to chose to go to court to resolve disputes.

Most agreements with individual investors in the financial services industry force customers into arbitration. Many investor advocates want investors to have the option of pursuing claims in court. Arbitration lacks the transparency of court and is sometimes cost prohibitive.