Bill Summary
The Investor Choice Act of 2019 is a bill that aims to amend the Securities Exchange Act of 1934 in order to prohibit mandatory predispute arbitration agreements, as well as make changes to the Securities Act of 1933 and the Investment Advisers Act of 1940. The purpose of this legislation is to give investors the choice to pursue arbitration or legal action in court for any disputes with brokers, dealers, and investment advisers. This is to ensure that investors have fair and equitable recourse in the securities market, as these entities hold powerful advantages over them. The bill also states that any existing agreements with mandatory arbitration clauses will be void, and the amendments will only apply to agreements made after the enactment of the Act.
Possible Impacts
1. The "Investor Choice Act of 2019" may affect people by giving them the option to choose between arbitration and court for resolving disputes with brokers, dealers, and investment advisers. This allows individuals to have more control over how they want to handle their financial disputes.
2. The legislation may also impact investors by limiting the power of brokers, dealers, and investment advisers, who may have previously used mandatory arbitration clauses to restrict the ability of defrauded investors to seek redress. This may provide more protection for investors and help restore their confidence in the securities markets.
3. The amendments made by this Act may also affect people by voiding any existing agreements that mandate arbitration for disputes between investors and issuers, and prohibiting the registration of securities if the issuer has a mandatory arbitration requirement in their bylaws or other governing documents. This could potentially lead to increased accountability and transparency for issuers, as they will no longer be able to use mandatory arbitration clauses to avoid legal action from shareholders.
[Congressional Bills 116th Congress]
[From the U.S. Government Publishing Office]
[H.R. 5336 Introduced in House (IH)]
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116th CONGRESS
1st Session
H. R. 5336
To amend the Securities Exchange Act of 1934 to prohibit mandatory
predispute arbitration agreements, and for other purposes.
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
December 6, 2019
Mr. Foster (for himself, Mrs. Carolyn B. Maloney of New York, Mr.
Meeks, Mr. Casten of Illinois, Mr. Lynch, Ms. Schakowsky, Mr. McGovern,
Mr. Clay, Ms. Dean, and Mr. Heck) introduced the following bill; which
was referred to the Committee on Financial Services
_______________________________________________________________________
A BILL
To amend the Securities Exchange Act of 1934 to prohibit mandatory
predispute arbitration agreements, and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Investor Choice Act of 2019''.
SEC. 2. FINDINGS.
Congress makes the following findings:
(1) Investor confidence in fair and equitable recourse is
essential to the health and stability of the securities markets
and to the participation of retail investors in such markets.
(2) Brokers, dealers, and investment advisers hold powerful
advantages over investors, and mandatory arbitration clauses,
including contracts that force investors to submit claims to
arbitration or to waive their right to participate in a class
action, leverage these advantages to severely restrict the
ability of defrauded investors to seek redress.
(3) Investors should be free to choose arbitration to
resolve disputes if they judge that arbitration truly offers
them the best opportunity to efficiently and fairly settle
disputes, and investors should also be free to pursue remedies
in court should they view that option as superior to
arbitration.
SEC. 3. ARBITRATION AGREEMENTS IN THE SECURITIES EXCHANGE ACT OF 1934.
(a) In General.--The Securities Exchange Act of 1934 is amended--
(1) by amending section 15(o) (15 U.S.C. 78o(o)) to read as
follows:
``(o) Limitations on Pre-Dispute Agreements.--Notwithstanding any
other provision of law, it shall be unlawful for any broker, dealer,
funding portal, or municipal securities dealer to enter into, modify,
or extend an agreement with customers or clients of such entity with
respect to a future dispute between the parties that--
``(1) mandates arbitration for such dispute;
``(2) restricts, limits, or conditions the ability of a
customer or client of such entity to select or designate a
forum for resolution of such dispute; or
``(3) restricts, limits, or conditions the ability of a
customer or client to pursue a claim relating to such dispute
in an individual or representative capacity or on a class
action or consolidated basis.''; and
(2) in section 6(b) (15 U.S.C. 78f(b)), by adding at the
end the following:
``(11) Mandatory arbitration.--The rules of the exchange
prohibit the listing of any security if such issuer, in its
bylaws, other governing documents, or any contract with a
shareholder related to the parties as issuer and shareholder
mandates arbitration for any disputes between the issuer and
the shareholders of the issuer.''.
(b) Application to Existing Agreements.--
(1) In general.--With respect to an agreement described in
section 15(o) of the Securities Exchange Act of 1934 that was
entered before the date of the enactment of this Act, any
provision prohibited by section 15(o) of the Securities
Exchange Act of 1934 is void.
(2) Ongoing arbitration.--A provision prohibited by section
15(o) of the Securities Exchange Act of 1934 shall not be void
under paragraph (1) if arbitration required by such provision
was initiated by any party on or before the date of the
enactment of this subsection.
SEC. 4. ARBITRATION AGREEMENTS IN THE SECURITIES ACT OF 1933.
Section 6 of the Securities Act of 1933 (15 U.S.C. 77f) is amended
by adding at the end the following:
``(f) Limitation on Arbitration Requirements.--A security may not
be registered with the Commission if the issuer of such security, in
its bylaws, or other governing documents, or any contract with a
shareholder related to the parties as issuer and shareholder mandates
arbitration for any disputes between the issuer and the shareholders of
the issuer.''.
SEC. 5. ARBITRATION AGREEMENTS IN THE INVESTMENT ADVISERS ACT OF 1940.
(a) In General.--Section 205(f) of the Investment Advisers Act of
1940 (15 U.S.C. 80b-5(f)) is amended to read as follows:
``(f) Notwithstanding any other provision of law, it shall be
unlawful for any investment adviser to enter into, modify, or extend an
agreement with customers or clients of such entity with respect to a
future dispute between the parties to such agreement that--
``(1) mandates arbitration for such dispute;
``(2) restricts, limits, or conditions the ability of a
customer or client of such entity to select or designate a
forum for resolution of such dispute; or
``(3) restricts, limits, or conditions the ability of a
customer or client to pursue a claim relating to such dispute
in an individual or representative capacity or on a class
action or consolidated basis.''.
(b) Application to Existing Agreements.--
(1) In general.--With respect to an agreement described in
section 205(f) of the Investment Advisers Act of 1940 that was
entered before the date of the enactment of this Act, any
provision prohibited by section 205(f) of the Investment
Advisers Act of 1940 is void.
(2) Ongoing arbitration.--A provision prohibited by section
205(f) of the Investment Advisers Act of 1940 shall not be void
under paragraph (1) if arbitration required by such provision
was initiated by any party on or before the date of the
enactment of this subsection.
SEC. 6. APPLICATION.
Except as otherwise stated, the amendments made by this Act shall
apply with respect to any agreement entered into, modified, or extended
after the date of the enactment of this Act.
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