By: Courtney Werning
Charles Schwab & Co. has been involved in an intense legal battle with
FINRA for over two years. FINRA has been attempting to force consumers
to give up their right to sue Schwab.
In 2012, FINRA claimed Schwab had violated its rules by inserting a clause
in its customer agreements, which all customers must sign, that waived
their right to participate in class actions against the firm. At that
time, a FINRA arbitration panel ruled that the Federal Arbitration Act
superseded the regulator's rules, allowing Schwab to keep the class
action waivers in place.
Because the potential consequences of that ruling are huge, as every broker-dealer
would like to insulate themselves from class action liability, FINRA appealed
the case to its National Adjudicatory Council. Last week, FINRA's
board, in a surprising move, took the case away from the council and reversed
the earlier decision by the FINRA arbitration panel. Schwab agreed to
settle the case and pay FINRA $500,000.