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New SEC Legislation on the Horizon


Richard Birke is a JAMS consultant and has taught dispute resolution for more than 20 years. He is a law school professor and director of the Center for Dispute Resolution at Willamette. Under his leadership, CDR has enjoyed more than a decade of high national rankings in the US and is the 2012 winner of the Ninth Circuit ADR Education Award. Mr. Birke is a two-time award‑winning author, as well as an ADR neutral, consultant and trainer. 

In the summer of 2010, President Barack Obama signed into law the “Dodd-Frank Act” (P.L. 111-203).  Three sections of that act should be particularly important to those who provide or employ dispute resolution services.

Section 921 grants the Securities and Exchange Commission the authority to limit or prohibit the use of pre-dispute arbitration agreements for securities disputes. Section 1028 requires the Consumer Financial Protection Bureau (CFPB) to conduct a study regarding pre-dispute arbitration agreements in consumer cases and then authorizes the CFPB to limit or prohibit the use of such agreements if the study concludes that such steps would be in the public interest. Section 1414 prohibits pre-dispute arbitration agreements for disputes involving residential mortgages or lines of credit secured by the borrower’s home.

So far, the SEC has not acted under its section 921 power. The section 1028 study is underway with public comments due by late June of this year. Section 1414 will take effect in June.

There are many studies and judicial opinions that conclude time and time again that mandatory pre-dispute arbitration agreements do not generally result in a detriment to the individuals who bring those actions. Additionally the Financial Industry Regulatory Authority (FINRA) handles between 4,000 and 7,000 cases – many (if not all) of which would be handled by overburdened federal courts should the SEC shut FINRA down.   But there has been little evidence that pre-dispute arbitration agreements may cause any problems – particularly in light of the steady flow of judicial cases in which judges sever or reform unconscionable arbitration clauses.

Officials involved in carrying out the mandates of sections 921, 1028 and 1414 should proceed deliberately as they consider how best to regulate ADR and ensure the consequences of prohibiting or limiting the use of pre-dispute arbitration agreements are well-thought-through.

We will report more as any news or changes develop.


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