Legislation Could End Mandatory Arbitration for Securities Disputes

On Friday a ranking Democratic member of the Senate Banking Committee, Sen. Sherrod Brown, introduced a bill aimed at ending pre-dispute arbitration agreements that have become commonplace in business-to-consumer businesses. The bill, called the Arbitration Fairness for Consumers Act, is specifically focused on student loan and credit card contracts; however, it has enormous implications for the securities industry, in which almost every brokerage contract includes a binding arbitration clause.Arbitration Clauses Are the Rule in the Securities IndustryMost investors we have dealt with do not even know that the binding arbitration clause was in their brokerage contract until a dispute arises. By then, many investors are shocked to learn that they cannot take their securities case in front of a jury of their peers, but instead must litigation through the arbitration forms administered by FINRA for financial advisors and the American Association of Arbitration for investment…

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