Investor Choice Act of 2021

I 117TH CONGRESS 1ST SESSION H. R. 2620 To amend the Securities Exchange Act of 1934 to prohibit mandatory pre- dispute arbitration agreements, and for other purposes. IN THE HOUSE OF REPRESENTATIVES APRIL 16, 2021 Mr. FOSTER (for himself, Mrs. CAROLYN B. MALONEY of New York, Mr. MEEKS, Mr. CASTEN, Ms. VELA´ZQUEZ, Mr. GARCI´A of Illinois, Ms. SCHAKOWSKY, and Ms. DEAN) 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 pre-dispute arbitration agreements, and for other purposes. Be it enacted by the Senate and House of Representa- 1 tives of the United States of America in Congress assembled, 2 SECTION 1. SHORT TITLE. 3 This Act may be cited as the ‘‘Investor Choice Act 4 of 2021’’. 5 SEC. 2. FINDINGS. 6 Congress finds the following: 7 (1) Investor confidence in fair and equitable re- 8 course is essential to the health and stability of the 9 VerDate Sep 11 2014 03:44 Jun 02, 2021 Jkt 019200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\H2620.IH H2620 kjohnson on DSK79L0C42PROD with BILLS 2 •HR 2620 IH securities markets and to the participation of retail 1 investors in those markets. 2 (2) Issuers, brokers, dealers, and investment 3 advisers hold powerful advantages over investors, 4 and mandatory arbitration clauses, including con- 5 tracts that force investors to submit claims to arbi- 6 tration or to waive the right of investors to partici- 7 pate in a class action lawsuit, leverage those advan- 8 tages to severely restrict the ability of defrauded in- 9 vestors to seek redress. 10 (3) Investors should be free to— 11 (A) choose arbitration to resolve disputes if 12 they judge that arbitration truly offers them 13 the best opportunity to efficiently and fairly set- 14 tle disputes; and 15 (B) pursue remedies in court should they 16 view that option as superior to arbitration. 17 SEC. 3. ARBITRATION AGREEMENTS IN THE SECURITIES 18 EXCHANGE ACT OF 1934. 19 (a) IN GENERAL.—The Securities Exchange Act of 20 1934 (15 U.S.C. 78a et seq.) is amended— 21 (1) in section 6(b) (15 U.S.C. 78f(b)), by add- 22 ing at the end the following: 23 ‘‘(11) The rules of the exchange prohibit the 24 listing of any security if the issuer of the security, 25 VerDate Sep 11 2014 03:44 Jun 02, 2021 Jkt 019200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\H2620.IH H2620 kjohnson on DSK79L0C42PROD with BILLS 3 •HR 2620 IH in the bylaws of the issuer, other governing docu- 1 ments, or any contract with a shareholder relating to 2 the parties as issuer and shareholder, mandates ar- 3 bitration for any dispute between the issuer and the 4 shareholders of the issuer, without regard to whether 5 such a provision in the bylaws, documents, or con- 6 tract is otherwise permissible under title 9, United 7 States Code.’’; and 8 (2) in section 15 (15 U.S.C. 78o), by amending 9 subsection (o) to read as follows: 10 ‘‘(o) LIMITATIONS ON PRE-DISPUTE AGREE- 11 MENTS.—Notwithstanding any other provision of law, in- 12 cluding any provision of title 9, United States Code, it 13 shall be unlawful for any broker, dealer, funding portal, 14 or municipal securities dealer to enter into, modify, or ex- 15 tend an agreement with customers or clients of that entity 16 with respect to a future dispute between the parties that— 17 ‘‘(1) mandates arbitration for that dispute; 18 ‘‘(2) restricts, limits, or conditions the ability of 19 a customer or client of that entity to select or des- 20 ignate a forum for resolution of that dispute; or 21 ‘‘(3) restricts, limits, or conditions the ability of 22 a customer or client of that entity to pursue a claim 23 relating to that dispute in an individual or rep- 24 VerDate Sep 11 2014 03:44 Jun 02, 2021 Jkt 019200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\H2620.IH H2620 kjohnson on DSK79L0C42PROD with BILLS 4 •HR 2620 IH resentative capacity or on a class action or consoli- 1 dated basis.’’. 2 (b) APPLICATION TO EXISTING AGREEMENTS.— 3 (1) IN GENERAL.—With respect to an agree- 4 ment described in section 15(o) of the Securities Ex- 5 change Act of 1934 (15 U.S.C. 78o(o)), as amended 6 by subsection (a) of this section, that was entered 7 into before the date of enactment of this Act, any 8 provision of that agreement that is prohibited by 9 such section 15(o), as amended by subsection (a) of 10 this section, is void. 11 (2) ONGOING ARBITRATION.—A provision of an 12 agreement prohibited by section 15(o) of the Securi- 13 ties Exchange Act of 1934 (15 U.S.C. 78o(o)), as 14 amended by subsection (a) of this section, shall not 15 be void under paragraph (1) if arbitration required 16 by that provision was initiated by any party on or 17 before the date of enactment of this Act. 18 SEC. 4. ARBITRATION AGREEMENTS IN THE SECURITIES 19 ACT OF 1933. 20 Section 6 of the Securities Act of 1933 (15 U.S.C. 21 77f) is amended by adding at the end the following: 22 ‘‘(f) LIMITATION ON ARBITRATION REQUIRE- 23 MENTS.—A security may not be registered with the Com- 24 mission if the issuer of the security, in the bylaws of the 25 VerDate Sep 11 2014 03:44 Jun 02, 2021 Jkt 019200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\H2620.IH H2620 kjohnson on DSK79L0C42PROD with BILLS 5 •HR 2620 IH issuer, other governing documents, or any contract with 1 a shareholder relating to the parties as issuer and share- 2 holder, mandates arbitration for any dispute between the 3 issuer and the shareholders of the issuer, without regard 4 to whether such a provision in the bylaws, documents, or 5 contract is otherwise permissible under title 9, United 6 States Code.’’. 7 SEC. 5. ARBITRATION AGREEMENTS IN THE INVESTMENT 8 ADVISERS ACT OF 1940. 9 (a) IN GENERAL.—Section 205(f) of the Investment 10 Advisers Act of 1940 (15 U.S.C. 80b–5(f)) is amended 11 to read as follows: 12 ‘‘(f) Notwithstanding any other provision of law, in- 13 cluding any provision of title 9, United States Code, it 14 shall be unlawful for any investment adviser to enter into, 15 modify, or extend an agreement with customers or clients 16 of the investment adviser with respect to a future dispute 17 between the parties to that agreement that— 18 ‘‘(1) mandates arbitration for that dispute; 19 ‘‘(2) restricts, limits, or conditions the ability of 20 a customer or client of the investment adviser to se- 21 lect or designate a forum for resolution of that dis- 22 pute; or 23 ‘‘(3) restricts, limits, or conditions the ability of 24 a customer or client of the investment adviser to 25 VerDate Sep 11 2014 03:44 Jun 02, 2021 Jkt 019200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\H2620.IH H2620 kjohnson on DSK79L0C42PROD with BILLS 6 •HR 2620 IH pursue a claim relating to that dispute in an indi- 1 vidual or representative capacity or on a class action 2 or consolidated basis.’’. 3 (b) APPLICATION TO EXISTING AGREEMENTS.— 4 (1) IN GENERAL.—With respect to an agree- 5 ment described in section 205(f) of the Investment 6 Advisers Act of 1940 (15 U.S.C. 80b–5(f)), as 7 amended by subsection (a) of this section, that was 8 entered into before the date of enactment of this 9 Act, any provision prohibited by such section 205(f), 10 as amended by subsection (a) of this section, is void. 11 (2) ONGOING ARBITRATION.—A provision of an 12 agreement prohibited by section 205(f) of the Invest- 13 ment Advisers Act of 1940 (15 U.S.C. 80b–5(f)), as 14 amended by subsection (a) of this section, shall not 15 be void under paragraph (1) if arbitration required 16 by that provision was initiated by any party on or 17 before the date of enactment of this Act. 18 SEC. 6. APPLICATION. 19 Except as otherwise stated, the amendments made by 20 this Act shall apply with respect to any agreement entered 21 into, modified, or extended after the date of enactment 22 of this Act. 23 Æ VerDate Sep 11 2014 03:44 Jun 02, 2021 Jkt 019200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6301 E:\BILLS\H2620.IH H2620 kjohnson on DSK79L0C42PROD with BILLS