The Investor Rights Clinic Sends FINRA Dispute Resolution Task Force Letter Proposing Changes to Benefit Small Claim Investors

FINRA provides the largest forum for the resolution of disputes between investors and their brokers. Indeed, because nearly all brokerage firms in the U.S. have included a pre-dispute arbitration provision in the agreements with their customers, individuals really have no choice but to pursue their claims in arbitration. In an effort to improve the transparency, impartiality and efficiency of the forum for all participants, FINRA formed a 13-member arbitration Task Force to solicit information and comments from all interested parties with the view towards making recommendations to FINRA’s advisory committee, the National Arbitration and Mediation Committee. [July 17, 2014 FINRA Press Release, at: ]

Of particular concern to the Investor Rights Clinic (IRC) is the arbitration process governing small claims, specifically, matters with losses under $50,000. Those matters are generally handled under FINRA’s Simplified Arbitration process, which is anything but simple. However, investors with losses in this range frequently cannot find legal representation due to the size of the claim. Unless they have access to one of a handful of law school clinics, such as the IRC, they are faced with the choice of either pursuing their claim in an unknown and complicated forum, or forgoing their claim altogether.

As such, on May 13, 2015, the IRC submitted a detailed, 10-page-letter (FINRA Task Force Letter (2015)) to the Task Force, outlining a number of issues and suggestions regarding the small arbitration claims process. As the IRC explained in its letter, the IRC routinely deals with claims under $50,000, and its clients and callers requesting assistance “regularly share information about the particular difficulties they face in understanding whether they have a claim in the first place and, if so, how to navigate FINRA’s Dispute Resolution process.”

The recommendations the IRC made to the Task Force include, among other things:

• Establishing a short simplified arbitration guide (in English and Spanish) with filing forms that investors can complete, at their option;

• Providing for telephonic hearings for all small claims at the customer’s option (the only choice for investors today is to proceed entirely on paper submissions or ask for a full blown, in-person hearing);

• Establishing a dedicated roster of small claim arbitrators specially trained in dealing with unrepresented investors;

• In larger cases, giving the customer the choice of a hearing where they reside at the time the claim is filed (since many have moved or relocated since the transactions at issue); and

• Recommending additional, sustained funding to the law school clinics that, like the IRC, provide critical assistance to investors at no charge.

The Task Force should complete its work by the end of this year. Even if all of the proposals are not ultimately adopted by FINRA, the IRC appreciated the opportunity to speak on behalf investors with small claims. The IRC student interns who drafted the recommendation are: Thomas Hospod (’15), Alexandra Levenson (’15), Jessica Neer (’16) and David Tanner (’15).