Financial Advisor IQ (November 18, 2021) - The House of Representatives' Financial Services Committee has passed a bill first introduced eight years ago that would prohibit broker-dealers, investment advisors and issuers from including pre-dispute binding mandatory arbitration clauses in their customer agreements.

The panel voted 27-23 on Tuesday to approve the bill, known as the Investor Choice Act, according to the committee’s website.

Introduced in the House of Representatives by Rep. Bill Foster, D-Ill., the bill would amend the Securities Exchange Act of 1934 to make it unlawful for companies to enter into agreements with customers requiring arbitration of disputes, restricting the customers’ choice of a forum for resolution and restricting their option to pursue claims in an individual or class action capacity, as reported.

Foster re-introduced the bill in April and the bill was endorsed by the North American Securities Administrators Association, the American Association for JusticePublic Citizen and Public Investors Advocate Bar Association.

The broker-dealer lobby group Securities Industry and Financial Markets Association, on the other hand, has argued that the “arbitration system has worked effectively for decades.”

The Investor Choice Act was first introduced in 2013, when the website gave it a 1% chance of becoming law, as reported. It was also introduced, unsuccessfully, in 2015, 2017 and 2019.

On Tuesday, meanwhile, the House Financial Services Committee also approved bills on fair hiring in banking, senior protection, special purpose acquisition companies and credit union governance, according to the committee.