Franken tells SEC to protect consumers from forced arbitration agreements

“The Dodd-Frank Act was enacted, among other reasons, to protect American consumers from abusive financial services practices,” the letter stated. “Ensuring a choice of forum, particularly for small investors, heightens fairness and ultimately enhances participation in our capital markets.”

Franken said Tuesday that when brokers engage in illegal behaviors that lose investors' money, mandatory arbitration clauses limit investors' legal rights to protect themselves. He said that Congress voiced its concern over the use of mandatory arbitration agreements in customer contracts and that Dodd-Frank granted SEC authority to restrict or prohibit such practices.

“To our disappointment, in the almost three years since the Dodd-Frank Act's enactment, the Commission has largely disregarded this important mandate,” Franken and his colleagues wrote. “The time is ripe for the Commission to act … to protect the investing public and prevent further abuse of forced arbitration contracts.”

The Democratic lawmakers asked the SEC to conduct a study to find out how many brokerage firms are including mandatory arbitration agreements and class action waivers into consumer contracts. They said that knowledge would allow SEC to better monitor the “questionable practice.”

“If arbitration offers investors an efficient forum to resolve disputes, as some argue, investors may choose that option-but they should be given the choice,” the letter stated. “It is equally important that investors not be precluded from bringing class actions because of contractual fine print imposed by a mandatory waiver class action clause.”

Sens. Patrick Leahy (D-Vt.), Tom Harkin (D-Iowa), Bernie Sanders (I-Vt.), Richard Blumenthal (D-Conn.), Dick Durbin (D-Ill.), Sheldon Whitehouse (D-R.I.), Jeff Merkley (D-Ore.), Mazie Hirono (D-Hawaii), Sherrod Brown (D-Ohio), Martin Heinrich (D-N.M.), Frank Lautenberg (D-N.J.), Robert Menendez (D-N.J.), Ron Wyden (D-Ore.) and Elizabeth Warren (D-Mass.) joined Franken in signing the letter, along with 22 House Democrats.

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