On September 18, the SEC approved a FINRA proposal that essentially does away with the ability to have an industry arbitrator serve on your panel.  So the question becomes, why bother arbitrating customer complaints.

Without an industry arbitrator on the panel, you have no choice but to hire an expert witness because there will be no “industry” perspective on the panel.  Even if you do so, that may not overcome a panel stacked against the firm due to the absence of an industry presence. money.jpg

If you have to incur this additional cost, you might as well get the procedural and appellate protection that a party enjoys in court.  Unlike FINRA arbitration, in court, you have the ability to challenge frivolous claims at an early stage, and a real ability to appeal an adverse result. 

Although there are additional costs in court, such as the costs of full discovery, I think that the cost is outweighed by the benefits, only a couple noted here.  In the end, there is not much of a benefit arbitrating customer disputes without an industry presence. 

To avoid being in an adverse court, you should have your customer agreements contain a clause that requires the claim to be litigated in one particular court.  Also, you should consider a jury waiver provision.  Depending upon your jurisdiction, these clauses are generally enforceable. 

The time has come to reconsider where to litigate customer complaints.  Serious thought should be given to doing away with arbitration in your customer agreements altogether, and opting to a court of your choice.

 * photo from freedigitalphotos.net