On Friday a ranking Democratic member of the Senate Banking Committee, Sen. Sherrod Brown, introduced a bill aimed at ending pre-dispute arbitration agreements that have become commonplace in business-to-consumer businesses. The bill, called the Arbitration Fairness for Consumers Act, is specifically focused on student loan and credit card contracts; however, it has enormous implications for the securities industry, in which almost every brokerage contract includes a binding arbitration clause.
Arbitration Clauses Are the Rule in the Securities Industry
Most investors we have dealt with do not even know that the binding arbitration clause was in their brokerage contract until a dispute arises. By then, many investors are shocked to learn that they cannot take their securities case in front of a jury of their peers, but instead must litigation through the arbitration forms administered by FINRA for financial advisors and the American Association of Arbitration for investment advisors.
A Jury of Your Peers vs a Panel of their Peers
Ever since these arbitration clauses became prevalent within the securities industry, investor advocates and plaintiff’s attorneys have sought to point out the unfairness they introduce into the system. Above all, investors who have been swindled by their financial professionals are not given an opportunity to have their cases heard by a judge or a jury of their peers; rather, they must face an arbitration panel selected from a pool of former financial professionals who are typically far less sympathetic to consumers than other consumers might be.
The legislation faces an uphill battle on Capitol Hill, where it will almost certainly be opposed by Republicans in Congress. Supporters of the bill suggested however that if a Democratic president were elected, the bill might have a chance of passing into law and removing some of the “unfair” protections the industry has given itself.
As things stand, investors who have been injured by their financial professionals will still have to bring their claims through the established arbitration channels. While consumers may advocate for themselves in these forums, it is generally best to find an attorney with deep experience in FINRA or AAA arbitration to help with your case.