Financial Reform Bill Moves into House-Senate Committee: Limits on Predispute Arbitration Clauses


In addition to the bills discussed in our recent post, the U.S. Congress is considering a major financial reform legislation.

  • The Restoring American Financial Stability Act of 2010. As it relates to ADR, this legislation would give the SEC the power to ban or limit mandatory arbitration in certain agreements. House Versions: H.R. 4173 and Status; Senate Versions: S.3217 and Status.

The most recent version of H.R. 4173 states,

SEC. 921. AUTHORITY TO ISSUE RULES RELATED TO MANDATORY PREDISPUTE ARBITRATION.
(a) AMENDMENT TO SECURITIES EXCHANGE ACT OF 1934.—Section 15 of the Securities Exchange Act of 1934 (15 U.S.C. 78o), as amended by section 918, is amended by adding at the end the following:

‘‘(l) AUTHORITY TO RESTRICT MANDATORY PREDISPUTE ARBITRATION.—The Commission may conduct a rulemaking to reaffirm or prohibit, or impose or not impose conditions or limitations on the use of, agreements that require customers or clients of any broker, dealer, or municipal securities dealer to arbitrate any dispute between them and such broker, dealer, or municipal securities dealer that arises under the securities laws or the rules of a self regulatory organization, if the Commission finds that such reaffirmation, prohibition, imposition of conditions or limitations, or other action is in the public interest and for the protection of investors.’’

(b) AMENDMENT TO INVESTMENT ADVISERS ACT OF 1940.—Section 205 of the Investment Advisers Act of 1940 (15 U.S.C. 80b–5) is amended by adding at the end the following:

‘‘(f) AUTHORITY TO ISSUE RULES RELATED TO MANDATORY PREDISPUTE ARBITRATION.—The Commission may conduct rulemaking to reaffirm or prohibit, or impose or not impose conditions or limitations on the use of, agreements that require customers or clients of any investment adviser to arbitrate any dispute between them and such investment adviser that arises under the securities laws, as defined in section 3 of the Securities Exchange Act of 1934 (15 U.S.C. 78c), or the rules of a self-regulatory organization, if the Commission finds that such reaffirmation, prohibition, imposition of conditions or limitations, or other action is in the public interest and for the protection of investors.’’.

H.R. 4173 already passed the House and the Senate (in lieu of S. 3217). On June 9, 2010, the bill moved into a House-Senate conference committee to reconcile differences.

Stay tuned to Disputing for more legislative updates.

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