Chalk this one up to bad PR.
In February 2012, FINRA filed a complaint against Charles Schwab & Co. charging the firm with violating its rules by requiring customers to waive their rights to bring class actions against the firm.
According to FINRA's complaint, Schwab amended its retail customer account agreement in October 2011 to include a provision requiring customers to waive their rights to bring or participate in class actions against the firm. Schwab sent the amended agreements to nearly seven million customers.
Schwab's agreement also included a provision requiring customers to agree that arbitrators would not have the authority to consolidate more than one party's claims. FINRA's complaint charges that both provisions violate rules concerning language or conditions that firms may place in customer agreements.
A year later, a FINRA hearing panel dismissed two of three causes in the complaint against Charles Schwab, concluding that FINRA could not enforce those rules because they are in conflict with the Federal Arbitration Act.
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. Schwab was ordered to remove the language from its customer agreements and pay a fine of $500,000.
"We look forward to the process winding its way to a conclusion,'' said Schwab spokesman Greg Gable.
In a surprising turn of events, Charles Schwab issued the following statement earlier this month: "While the company believes that dispute resolution is best handled via FINRA arbitration, we have chosen to voluntarily remove the waiver going forward until the issue is resolved by the appropriate regulatory and/or court decisions.
Given that the process will likely take considerable time to resolve, and may leave clients with a degree of uncertainty about their dispute resolution options in the meantime, we have elected to remove that uncertainty until the legal and regulatory process is completed."
The firm also said it will continue its existing policy of paying for the arbitration fees of any investor electing to pursue an arbitration claim under $25,000 against Schwab.
Sometimes, the little guy wins.