by E. Sebastian Arduengo
The Financial Industry Regulatory Authority or FINRA recently found that Charles Schwab, violated FINRA consumer protection rules by including provisions in customer agreements where customers waived their right to assert claims through the class action mechanism. The punishment for trying to structure a customer agreement that effectively allows Schwab to cheat their customers without fear of repercussion? A slap on the wrist.
FINRA's weak action was a result of the U.S. Supreme Court's opinion in AT&T v. Concepcion. The Court held that arbitration agreements that waived a party’s ability to bring a class action must be enforced, even if they were in “take it or leave it” contracts of adhesion, where the consumer had no choice but to agree if they wanted cell phone service. At the time, The New York Times noted “the decision … appeared to provide businesses with a way to avoid class-action lawsuits in court. All they need do … is use standard-form contracts that require two things: that disputes be raised only through the informal mechanism of arbitration and that claims be brought one by one.”
This brings us back to the FINRA decision, which is a perfect application of the litigation strategy outlined by The Times, and shows why Concepcion was such a terrific decision for corporate America (not so much for the rest of us). In direct response to the Supreme Court’s ruling in Concepcion , Schwab put new waiver provisions in their 2011 customer agreements, which covered close to seven million customers. The waivers that they put into the 2011 customer agreements were worded such that any customer claim against Schwab had to be arbitrated “solely on an individual, case-by-case basis.”