The allowance of class-action waivers between brokers and customers is being called into question with the Supreme Court, and it could have a dramatic impact on how arbitration is handled through Finra moving forward. The Trump Administration has raised questions regarding the regulation of class-action waiver, in a brief that was filed with the 5th Circuit Court of Appeals.
In the past, Finra has not allowed for class-action waivers during arbitration between brokers and customers. As recently as 2014, Finra refused to allow Charles Schwab Corp. to use class-action waivers in their arbitration agreements. But that could change. In 2018, the Supreme Court will be hearing cases in which the Trump administration will argue that arbitration clauses should allow for class-action waivers.
Professionals speculate that Finra could side with the Trump Administration following a Supreme Court argument, which would radically alter the way that arbitration is now handled between brokers and customers. However, Hugh Berkson, principal at McCarthy Lebit Crystal & Liffman, points out that it’s ultimately up to Finra’s discretion.
Of the waivers, Berkson says, “It’s up to Finra to enforce its own rules with its own members. One hopes it will. … The arbitration system is something Finra takes great pride in, and I don’t think it will give in to pressure from any side to make substantial changes to the system.”
Both the Trump Administration and Finra do agree on one thing: they both support the usage of arbitration, and that is not likely to change for either party. All that lies in question is whether or not class-action waivers will be allowed in arbitration agreements moving forward.
Hugh Berkson is a Securities Attorney with McCarthy, Lebit, Crystal & Liffman, Co. LPA with over 20 years of representing individuals who have lost money due to the negligence of investors and brokers.
Hugh is a past President of the Public Investors Arbitration Bar Association (PIABA), an international legal association composed of practitioners who represent investors in disputes with the securities industry. He was also just re-elected to PIABA’s Board of Directors, where he has served as a director since 2011.
