Nine consumer and investor organizations submitted a letter this week to the FINRA Dispute Resolution Task Force seeking transparency on the task force’s examination of forced investor arbitration. The groups – Americans for Financial Reform, the Alliance for Justice, the Center for Justice and Democracy, Consumers Union, National Consumers League, Public Citizen, the National Association of Consumer Advocates, US PIRG, and the Public Investors Arbitration Bar Association (PIABA) – sought the release of critical information that could inform the public on the forced arbitration process at FINRA, the industry-run body that oversees and operates investor arbitration proceedings. The task force is scheduled to meet today.
In their joint letter, the groups wrote: “ … we request that you support the release of information, including data in the form of studies and reports, that FINRA and/or the SEC have collected regarding investor awareness and understanding of predispute binding mandatory (or forced) arbitration; effectiveness of FINRA’s arbitrator selection process; prevalence of forced arbitration clauses in brokerage firm and investment advisory contracts; and other feedback that FINRA has collected from investors about any or all of these issues.”
The letter notes: “Mandatory arbitration deprives investors doing business with brokerage firms and investment advisers of the right to a judge and jury. Investors do not receive open hearings and often do not receive fair ones. In addition, the process is unlikely to result in adequate awards against brokers to deter misconduct and compensate injured investors. There is even evidence that brokers have been able to use the arbitration process to clean their records of investor complaints, as if they never occurred. Although it is intended as a substitute for public courts, FINRA’s arbitration system stunts development of critical legal policy. It also can deprive investors of the benefits of the law because arbitrators are not obligated to follow it, and written opinions are closed to the public or may not be issued at all. Meanwhile, important information about arbitrator selection and other elements of FINRA’s arbitration system remain unavailable to the public.”
In its MoneyBeat column, the Wall Street Journal noted the groups’ letter: “Nine groups advocating for consumers and investors are calling for the release of data the Financial Industry Regulatory Authority keeps on its arbitration program. In a statement sent to news media, the organizations criticized the industrywide policy of mandatory arbitration, which “deprives investors doing business with brokerage firms and investment advisers of the right to a judge and jury.”
InvestmentNews provided more detail on the groups’ request.