On the eve of its second meeting, the FINRA Dispute Resolution Task Force received a joint letter from PIABA and several other consumer groups urging it to recommend the release of data about the FINRA arbitration program.
The January 21st letter, which was announced in a Press Release the same day, was signed by 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 PIABA.
We have previously covered the FINRA Dispute Resolution Task Force (“Task Force”), which was created last summer to “suggest strategies to enhance the transparency, impartiality, and efficiency of FINRA’s securities dispute resolution forum” (see SAAs 2014-26, -27, -31 & -37). The transparency topic is evidently getting attention, because the groups urge the Task Force to recommend to FINRA “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 what the groups perceive as the erosion of investors’ rights in the wake of Dodd-Frank and AT&T Mobility v. Concepcion, 563 U.S. 321 (2011), and identifies as the main culprit mandatory arbitration. Transparency, the letter says, is a means of addressing concerns about securities arbitration until mandatory arbitration is eliminated. “As long as brokerage firms and investment advisers retain the ability to require investors to resolve disputes in arbitration, FINRA arbitration may be inherently biased against individuals. The system is ripe for change to level the playing field and ensure that every investor has the right to access the court system. In the meantime, the task force has the ability to urge disclosure of critical information that will shed light on the FINRA arbitration system.”
Areas of Special Interest
The letter closes with a one-page appendix listing five specific areas of interest: 1) investor awareness and understanding of predispute binding mandatory (or forced) arbitration; data to support stated goals of FINRA's arbitrator selection process; the prevalence of forced arbitration clauses in brokerage firm contracts; and other feedback that FINRA has collected from investors about any or all of these issues; 2) investigations regarding arbitration awards, in particular any data allowing comparison of cases where investors are awarded a fraction of their losses to those where investors are fully compensated for their losses; 3) arbitrators' records, including any analysis of the percentage of cases in which individual arbitrators have found in favor of a brokerage firm over an investor or vice versa; 4) the likelihood of an investor prevailing on any particular type of claim or the likelihood of any particular arbitrator issuing an award in favor of an investor or a brokerage firm; and 5) whether investor protection is less secure in the investment advisory context where the choice of arbitration providers is solely within the discretion of the investment advisers or in FINRA arbitration, the required forum for brokerage firms.
(ed: We are all for transparency, which after all is one of the Task Force’s study areas. But rather than expending FINRA’s resources digging up what will often be stale or irrelevant data, we think the Task Force would be better served by focusing on prospective release of information. For example, we have recommended: 1) posting on the FINRA Website the names and affiliations of the National Arbitration and Mediation Committee (“NAMC”) members, just as FINRA does for its Board; 2) making public high level results of NAMC meetings, just as FINRA does for its Board meetings; and 3) publishing the number of panelists on its roster of neutrals by hearing location). (SAC Ref. No. 2015-03-01)
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