InvestmentNews (May 16, 2013 3:34 pm) — The Charles Schwab Corp. has temporarily eliminated language in its client contracts that prevents customers from filing class-action lawsuits but whether the decision marks the beginning of the end of mandatory arbitration clauses remains to be seen as the industry awaits a key Finra board ruling on the issue.

Even so, the firm’s critics won’t be satisfied until the controversial provision is gone for good.

In a statement released Wednesday, the firm said that it would modify account agreements, specifically the class-action lawsuit waiver, for disputes related to events on or after May 15.

“While the company believes that dispute resolution is best handled via … arbitration, we have chosen to voluntarily remove the waiver going forward until the issue is resolved by the appropriate regulatory and/or court decisions,” the company said. “Given that the process will likely take considerable time to resolve, and may leave clients with a degree of uncertainty about their dispute resolution options in the meantime, we have elected to remove that uncertainty until the legal and regulatory process is completed.”

Finra brought charges against Schwab last year, claiming that the company’s arbitration agreement violated its rules that ensure customers can join a court-filed class action case instead of arbitration. But a Finra hearing panel in February ruled in Schwab’s favor, saying that the Federal Arbitration Act prevented Finra from enforcing those rules.

Finra appealed the decision to its internal appeals board, the National Adjudicatory Council, or NAC, where the case is pending and expected to be heard in September.

With the waiver that it inserted into its client contracts, Schwab was a trailblazer on how to handle class-action suits, according to Douglas Schriner, president of FA Risk Management Inc.

But even though Schwab has stepped back from its original position, other firms will wait to see how the NAC rules before making any adjustments to their own contracts.

“We don’t know how the NAC’s going to view this,” Mr. Schriner said. “Nobody wants to get out ahead of regulatory changes that might negatively affect dispute resolution.”

Organizations such as the North American Securities Administrators Association Inc. that have been pushing to end mandatory arbitration clauses in client contracts, took a skeptical view of Schwab’s action.

The modification “looks like a PR move,” said A. Heath Abshure, Arkansas securities commissioner and NASAA president. The company is essentially putting the class-action waivers on hold rather than eliminating them, Mr. Abshure said. “It really hasn’t changed their position.”

State securities regulators have been pushing the Securities and Exchange Commission to use the authority granted by the Dodd-Frank financial reform law to end or reform the use of mandatory arbitration clauses.

“We’ve still got a long way to go, and we’re not going to stop with our effort just because this happened,” Mr. Abshure said in reference to Schwab’s decision.

Schwab spokesman Greg Gable declined to respond directly to NASAA’ reaction.

“Our statement speaks for itself,” he said, reiterating that the dispute with Finra would likely last a while, “and we wanted to remove some of the uncertainty while we wend through that process.”

In an email, Finra spokeswoman Michelle Ong declined to comment, citing the pending litigation.

Schwab’s move is “a positive development for the investing public and certainly for Schwab customers,” said Scott Ilgenfritz , president of the Public Investors Arbitration Bar Association, which represents plaintiffs’ attorneys.

But “we’ll have to wait and see what happens with the appeal” by Finra to the NAC, said Mr. Ilgenfritz, who is also a partner with Johnson Pope Bokor Ruppel & Burns LLP.

PIABA, the AARP and NASAA have supported Finra’s appeal by filing amicus briefs with the NAC.

State securities regulators also recently wrote to the Securities and Exchange Commission to ask the agency to overturn the Finra hearing panel’s decision.

“Hopefully the public pressure Schwab has received will [keep] other [brokerage] firms” from using similar class-action waivers, said Christine Hines, spokeswoman for Public Citizen, a consumer activist group that is pushing for an end to mandatory arbitration agreements for consumers.

The group took credit for Schwab’s action and, in a statement, said Schwab was “bowing to public pressure” created by a petition drive Public Citizen instigated three weeks ago. The organization urged Schwab to stop using the waiver even if a court ultimately rules in its favor.