"FINRA Concludes That Class Action Waiver Contained in Customer Agreements is Valid and Enforceable but Waiver of the Right to Consolidate Claims is Not"

This Stroock Special Bulletin discusses the case Dep’t of Enforcement v. Charles Schwab & Co., Inc., a disciplinary proceeding brought by the FINRA Department of Enforcement against Charles Schwab & Co., Inc.

The FINRA Office of Hearing Officers held that newly-added class action waiver clauses in Schwab's customer agreements are valid and enforceable. Although Schwab's class action waiver was found to violate FINRA Rules that expressly allow for judicial class actions, the Hearing Panel concluded that the Federal Arbitration Act, as construed by the United States Supreme Court in AT&T Mobility LLC v. Concepcion, 563 U.S. __, 131 S. Ct. 1740 (2011), overrides FINRA Rules regardless of any policy concerns. The Hearing Panel also held, however, that the waiver of the right to consolidate claims of multiple customers in arbitration is unenforceable because the FINRA Rules that permit consolidation are not preempted by the FAA.