Wednesday, June 3, 2009

Does the NASAA Really Oppose "Take it or Leave it" Arbitration Clauses?

Intellectual honesty is important; particularly when it comes to government officials and regulators. Which is why I simply shake my head at the comments made by the North American Securities Administrators Association (the "NASAA") regarding pre-dispute arbitration agreements.

The NASAA is an organization of securities regulators - its membership consists of the securities regulators from the 50 states. In a recent press release it announced that it fully supports the Arbitration Fairness Act, which would overturn decades of law in the United States, and which would make pre-dispute arbitration agreements unenforceable.

Putting aside the question of whether the Act is a good idea or not, the support of the NASAA is a bit surprising. In its statement, the NASAA not only attacked the arbitration process itself (calling it unfair) but also stated that a "take-it-or-leave-it" arbitration provision is inherently unfair.

Why is that position surprising? Because the NASAA supports a system of rules that require employees to arbitration every dispute they have with their employers. FINRA rules require all brokers and brokerage firms, to arbitrate every customer dispute, and every dispute amongst themselves. Brokers, who are individuals just like consumers and investors, have the same "take-it-or-leave-it" arbitration agreement presented to them. If you want to be a stock broker, you MUST agree to arbitration every dispute with a customer, and your employer, because the FINRA rules require you to do so. You have no choice. If you want to be a broker you MUST agree to arbitrate your disputes.

So, if take it or leave it arbitration provisions are bad, and if the state securities regulators are against such provisions, why are they not forcing FINRA to drop the requirement for brokerage firm employees? Why are these regulators not adopting regulations, which they have every right and authority to do, declaring pre-dispute arbitration agreements for brokerage firm employees to be unenforceable?

I am a fan of arbitration, in particular FINRA Arbitrations. But if you are going to claim that pre-dispute arbitration agreements are unfair and should be enforceable, then all of such agreements should be unenforceable. The members of the NASAA could make that law with the stroke of a pen.

Why haven't they done so?

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