The discount brokerage firm Charles Schwab & Company has agreed to pay a $500,000 fine and give up an effort to prevent customers from participating in class-action lawsuits.
The Financial Industry Regulatory Authority, Wall Street’s self-regulator, said on Thursday that it had reached the settlement with Schwab. The decision resolves a regulatory action that was initially filed in early 2012.
For more than two decades, individual investors have generally been unable to file lawsuits for disputes with stockbrokers, forced instead to agree to arbitration. But Schwab went one step further in 2011, adding a clause to its customer agreement requiring investors to agree not to band together in class-action suits.
The regulator, known as Finra, filed a complaint against Schwab in February 2012, saying the clause violated its rules. Schwab challenged the decision and won at a panel hearing last year. Finra then appealed, sending the matter to its national adjudicatory council.
But the Finra board of governors, which has authority above the adjudicatory council, overturned the panel’s decision last year. The panel had said that a particular law, the Federal Arbitration Act, prevented Finra from enforcing these rules.
As part of the settlement, Schwab agreed to notify all of its customers that the clause requiring them to waive their right to class-action lawsuits had been withdrawn and was no longer in effect, Finra said on Thursday.
The case attracted attention from state securities regulators and Democratic members of Congress, Susan Antilla reported in DealBook in September. After the ruling in favor of Schwab, an advocacy group started an online petition, “Stand Up to Chuck: Demand That Charles Schwab Corporation Stop Denying Its Customers’ Rights,†and collected 17,000 signatures.
