FINRA panel fines Schwab $500,000 over customer complaint limit

NEW YORK Thu Feb 21, 2013 2:58pm EST

NEW YORK Feb 21 (Reuters) - A regulatory panel fined Charles Schwab Corp $500,000 for attempting to limit arbitrators' ability to consolidate client complaints, but said Schwab could not be fined for restricting clients from participating in class-action suits against the brokerage firm.

The Financial Industry Regulatory Authority (FINRA) last February charged Schwab with violating its rules by adding class-action and arbitration limitations to its customer account agreements.

A FINRA hearing panel on Thursday dismissed two of the three complaints regarding the class-action language. Although Schwab's language violates FINRA rules, the rules cannot be enforced because they conflict with the Federal Arbitration Act, the panel ruled.

The panel upheld the third FINRA complaint concerning Schwab's attempt to prevent arbitrators from consolidating client complaints. The federal arbitration law does not dictate how an arbitration forum should be governed and operated, and does not prohibit consolidation of individual claims, it ruled.

In addition to the $500,000 fine, it ordered Schwab to take corrective action and remove the violative language from its customer agreements.

"Schwab is pleased with the panel's decision, which ruled in the company's favor on the central class action waiver issue," Schwab said in a prepared statement. "The company believes customers are better served through the existing FINRA arbitration process and that class-action lawsuits are a cumbersome and less effective means of resolving disputes - for both parties."

Schwab in January removed the provision limiting arbitration hearings that consolidated complaints, a Schwab spokesman said.

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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