FINRA Hearing Panel Dismisses Two of Three Causes of Action in Complaint
Against Charles Schwab & Company
Panel Orders Schwab to Pay $500,000 Fine and Correct Language in
WASHINGTON -- February 21, 2013
The Financial Industry Regulatory Authority (FINRA) announced today that a
FINRA hearing panel has dismissed two of three causes in a February 2012
complaint against Charles Schwab & Company. The panel concluded that the
amended language used in Schwab’s customer agreements to prohibit
participation in judicial class actions does violate FINRA rules, but that
FINRA may not enforce those rules because they are in conflict with the
Federal Arbitration Act (FAA).
In the third cause of action, the panel found that Schwab violated FINRA rules
by attempting to limit the powers of FINRA arbitrators to consolidate
individual claims in arbitration. The panel further concluded that the FAA
does not bar enforcement of FINRA’s rules regarding the powers of arbitrators,
because the FAA does not dictate how an arbitration forum should be governed
and operated, or prohibit the consolidation of individual claims. The panel
ordered Schwab to take corrective action, including removing violative
language, and imposed a fine of $500,000.
In its complaint, FINRA’s Enforcement Department had charged Schwab with
violating FINRA rules concerning language or conditions that firms may place
in customer agreements when Schwab amended its customer account agreement to
include a provision requiring customers to waive their rights to bring or
participate in class actions against the firm. The agreement also included a
provision requiring customers to agree that arbitrators in arbitration
proceedings would not have the authority to consolidate more than one party's
Unless the hearing panel's decision is appealed to FINRA’s National
Adjudicatory Council (NAC) or is called for review by the NAC, the hearing
panel's decision becomes final after 45 days.
Investors can obtain more information about, and the disciplinary record of,
any FINRA-registered broker or brokerage firm by using FINRA's BrokerCheck.
FINRA makes BrokerCheck available at no charge. In 2012, members of the public
used this service to conduct 14.6 million reviews of broker or firm records.
Investors can access BrokerCheck at www.finra.org/brokercheck or by calling
(800) 289-9999. Investors may find copies of this disciplinary action as well
as other disciplinary documents in FINRA's Disciplinary Actions Online
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regulator for all securities firms doing business in the United States. FINRA
is dedicated to investor protection and market integrity through effective and
efficient regulation and complementary compliance and technology-based
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from registering and educating all industry participants to examining
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resolution forum for investors and firms. For more information, please visit
Financial Industry Regulatory Authority
Michelle Ong, 202-728-8464
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