Charles Schwab & Co. Loses Battle to Prevent Class Action Cases

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 At that time, a FINRA arbitration panel ruled that the Federal Arbitration Act superseded the regulator's rules, allowing Schwab to keep the class action waivers in place.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.


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