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Democrats warn SEC against forced arbitration clauses

The prospect of public companies being allowed to dictate forced arbitration to shareholders prompted 26 Democratic House members to warn SEC Chairman Jay Clayton against considering the idea.

In a letter Monday, Democrats on the House Financial Services Committee said they "strongly oppose any effort to reverse the commission's longstanding position" that forced arbitration clauses violate federal securities law.

Given that history, "and the significant impact such a monumental shift in policy would have on American investors, any examination of this issue should be done in a transparent manner," they wrote. Anything viewed as a stealth attempt to change policy on forced arbitration would trigger swift and negative response from Congress and the public, they said.

The letter came in response to reports that some Securities and Exchange Commission officials have signaled a willingness to consider allowing forced arbitration clauses in corporate governance documents.

Mr. Clayton told attendees at the Council of Institutional Investors' Washington conference on Tuesday that the commission taking up the issue is not within his control, but added: "Because it is an emotionally charged issue, and one that would take a lot of time and a lot of commission bandwidth ... I am not anxious to take up our time and bandwidth with this issue at this time."