Investor Protection

SOS Coalition Urges House Judiciary Committee Members to Support the FAIR Act

CFA and 27 other consumer advocacy groups push to end forced investor arbitration through the passage of this act

 |  Testimony & Comments

Washington, D.C. – Last week, CFA and the Secure Our Savings (SOS) coalition sent a letter to the House Committee on the Judiciary in support of the the Forced Arbitration Injustice Repeal (FAIR) Act (H.R. 1423). The FAIR Act would prohibit forced arbitration of consumer, investor, and worker disputes and bars class action bans. The Act would also ensure that investors with claims against their brokers would have the choice of whether to bring them in court or in FINRA’s arbitration forum.

Investors are affected by forced arbitration in two ways:

  • Virtually all customers of broker-dealers must, as a condition of opening a brokerage account, agree to resolve any disputes with their broker in the industry-run arbitration forum operated by the Financial Industry Regulatory Authority (FINRA).
  • New campaigns that have been launched in recent years to include forced arbitration clauses in corporate charters or bylaws and through proxy measures as a way to prevent shareholders from holding company management accountable in court when they commit securities fraud.

The Securities and Exchange Commission (SEC) has long prohibited public companies from adopting forced arbitration policies. However, a recent campaign to overturn that policy appears to enjoy strong support among certain SEC officials. As a result, the FAIR Act’s protections are urgently needed to protect defrauded shareholders’ right to seek compensation for their losses. Consumer advocates worry that without urgent action, shareholders may lose the right to band together in class actions involving corporate securities fraud.

If the FAIR Act were adopted, many investors would likely continue to choose FINRA arbitration to resolve their broker disputes. But others, including those whose claims are not well suited to arbitration, because they require extensive discovery or involve complex issues of law, would have a choice to pursue their claims in a court of law. And the right to participate in class actions would be protected from industry challenge. The FAIR Act would restore and protect investor rights, increase accountability and transparency, and make our financial system stronger and safer for the millions of Americans who rely on our capital markets to save and invest.