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.

The North American Securities Administrators Association, Inc. (NASAA) announced its support for the Investor Choice Act of 2019 (S. 2992) in a June 2020 letter to the bill’s sponsor, United States Senator Jeff Merkley. NASAA is made up of securities administrators in all 50 states, Canada, and Mexico. NASAA describes its mission as protecting consumers who purchase securities or investment advice. Its members have authority to investigate investor complaints, enforce state securities laws, and educate investors about their rights.

The Investor Choice Act would prohibit broker-dealers and other investment industry professionals from including mandatory arbitration requirements and prohibitions on class action lawsuits in contracts that many investor customers enter into to receive investment services. These provisions in customer agreements force investors to give up important legal rights to work with a financial professional. Arbitration requirements mean investors give up the right to bring claims in court and have a judge or jury resolve the dispute. Class action waivers make it difficult or impossible for investors with small or relatively small claims to obtain relief because the costs of individual cases often are greater than the potential recovery. For many investors who are the victims of fraud or other financial misconduct but who have relatively small claims, class action waivers mean that the defendant will never be held accountable for illegal acts.

For more information, this link will bring you to the text of the Investor Choice Act. Click here to learn more about NASAA.