NASAA Supports Investor Choice Act of 2013 Relating to Arbitration Rights (with Lofchie Comment)

NASAA has declared its support for The Investor Choice Act of 2013 (HR 2998) which would amend Section 921 ("Authority to Restrict Mandatory Pre-Dispute Arbitration") of Dodd-Frank. The Investor Choice Act would statutorily prohibit the use of mandatory pre-dispute agreements by broker-dealers and investment advisers that force investors to arbitrate disputes or otherwise surrender rights to participate in a class action lawsuit. According to the NASAA press release, the Act is partially in reaction to a decision in which Schwab had been successful in enforcing an agreement to limit certain customer class action rights.

Lofchie Comment: Broker-dealers are generally required by FINRA's rules to arbitrate disputes if their customers want to do so, even if the relevant broker-dealer does not. It would seem implicit in the proposal that customers of broker-dealers would retain their right to arbitrate, and thus it would be entirely customers' decisions whether to arbitrate or go to court. On the other hand, since investment advisers are not required by any SRO rules to arbitrate, they would logically refuse to enter into any arbitration agreement with a client, since the agreement would have to be one-sided in favor of the client.

See: NASAA Press Release (links to the Investor Choice Act).