Investor Choice Act of 2026
- Sponsor
- Sen. Merkley, Jeff [D-OR]
- Committees
- Banking, Housing, and Urban Affairs Committee (primary)
- Last action
- Jun 24, 2026
Bottom line
The bill aims to restore investors' ability to choose between arbitration and court litigation, including class actions, for disputes with financial firms and public companies, directly challenging existing arbitration practices and federal law.
What it actually does
This bill prohibits mandatory pre-dispute arbitration agreements in the securities industry, making it unlawful for brokers, dealers, funding portals, municipal securities dealers, and investment advisers to require customers to arbitrate future disputes or waive class action rights. It also prohibits securities exchanges from listing, and the SEC from registering, securities from issuers that mandate arbitration for shareholder disputes. Crucially, it voids existing mandatory arbitration clauses in agreements entered into before the bill's enactment, unless arbitration was already initiated.
Proponents argue
Proponents argue that mandatory arbitration clauses are inherently unfair, stripping investors of their fundamental right to seek redress in court and participate in class action lawsuits, which are often the only viable avenue for small-dollar claims. They contend that these clauses are often buried in fine print, giving powerful financial institutions an unfair advantage and eroding investor confidence in the fairness of the securities markets. This bill, they say, would level the playing field and ensure equitable recourse for defrauded investors.
Opponents contend
Opponents typically argue that arbitration is a more efficient, cost-effective, and private method for resolving disputes compared to litigation, benefiting both investors and firms by avoiding lengthy and expensive court battles. They contend that prohibiting mandatory arbitration would lead to an increase in frivolous lawsuits, higher legal costs for financial firms, and ultimately, higher costs for investors through increased fees or reduced services. They also argue that the bill undermines the Federal Arbitration Act, which generally favors the enforcement of arbitration agreements.
The bill is short and relatively straightforward, allowing an informed reader to grasp its core implications within the typical time allotted for legislative review.
Section 3(a)(1), page 2, lines 18-25; page 3, lines 1-4
Prohibition on Mandatory Arbitration for Listed Securities
This provision amends the Securities Exchange Act of 1934 to require that the rules of a national securities exchange prohibit the listing of any security if the issuer mandates arbitration for disputes between the issuer and its shareholders. This applies regardless of whether such a provision would otherwise be permissible under federal arbitration law (Title 9, U.S. Code).
Supporters argue
Proponents argue that this provision protects shareholders from being forced into arbitration by the companies they invest in, ensuring they have access to traditional court systems for disputes. They contend that this promotes fairness and transparency in corporate governance, which is essential for investor confidence.
Critics contend
Opponents might argue that this provision interferes with corporate contractual freedom and could lead to an increase in shareholder litigation, potentially driving up costs for public companies and making U.S. markets less attractive for listings. They may also argue that arbitration offers a more efficient resolution for complex corporate disputes.
Tradeoffs
This provision balances corporate autonomy in dispute resolution mechanisms against the desire for greater shareholder protection and access to judicial remedies. It creates a tension between the efficiency often associated with arbitration and the perceived fairness and transparency of court proceedings.
Section 3(a)(2), page 3, lines 5-17
Prohibition on Mandatory Arbitration for Broker-Dealer Customer Agreements
This section amends the Securities Exchange Act of 1934 to make it unlawful for brokers, dealers, funding portals, or municipal securities dealers to enter into, modify, or extend agreements with customers that mandate arbitration for future disputes, restrict forum selection, or limit the ability to pursue claims individually, representatively, or on a class action basis. This prohibition explicitly overrides other laws, including the Federal Arbitration Act.
Section 3(b), page 3, lines 18-25; page 4, lines 1-3
Application to Existing Broker-Dealer Agreements
This provision specifies that any mandatory arbitration clause in an agreement between a broker-dealer and a customer, entered into before the bill's enactment, is void if it is prohibited by the new Section 15(o) of the Securities Exchange Act. However, if an arbitration proceeding was already initiated by any party on or before the enactment date, that specific arbitration is allowed to proceed.
Section 4, page 4, lines 5-13
Prohibition on Mandatory Arbitration for Registered Securities
This section amends the Securities Act of 1933 to prohibit the registration of any security with the Securities and Exchange Commission if the issuer mandates arbitration for disputes between the issuer and its shareholders in its bylaws, other governing documents, or any shareholder contract. Similar to Section 3(a)(1), this applies irrespective of other federal arbitration laws.
Section 5(a), page 4, lines 16-25; page 5, lines 1-6
Prohibition on Mandatory Arbitration for Investment Adviser Agreements
This section amends the Investment Advisers Act of 1940 to make it unlawful for investment advisers to enter into, modify, or extend agreements with clients that mandate arbitration for future disputes, restrict forum selection, or limit the ability to pursue claims individually, representatively, or on a class action basis. This prohibition explicitly overrides other laws, including the Federal Arbitration Act.
Section 5(b), page 5, lines 7-14
Application to Existing Investment Adviser Agreements
This provision mirrors Section 3(b) by stating that any mandatory arbitration clause in an agreement between an investment adviser and a client, entered into before the bill's enactment, is void if it is prohibited by the new Section 205(f) of the Investment Advisers Act. An exception is made for arbitrations already initiated by the enactment date.
Multiple provisions explicitly state that the prohibitions on mandatory arbitration apply 'Notwithstanding any other provision of law, including any provision of title 9, United States Code.'
Section 3(a)(1), page 3, lines 2-4; Section 3(a)(2), page 3, lines 8-9; Section 4, page 4, lines 11-13; Section 5(a), page 4, lines 18-19
Why it matters:This phrasing is standard legislative practice for asserting preemption or overriding existing law. It is not evasive but rather a direct legal mechanism to ensure the bill's intent to supersede the Federal Arbitration Act (FAA) is clear.
Case for: Proponents argue this language is essential to achieve the bill's goal of ending mandatory arbitration, as the FAA has historically been interpreted by courts to strongly favor the enforcement of arbitration agreements. Without this explicit override, the bill's effectiveness could be severely undermined by judicial challenges.
Case against: Opponents would argue that this direct override of the FAA represents a significant departure from established federal policy favoring arbitration as an efficient dispute resolution mechanism. They contend it could lead to legal challenges regarding Congress's authority to retroactively invalidate arbitration agreements and interfere with contract law.
Estimated impact: This language is central to the bill's legal enforceability and its ability to fundamentally alter the landscape of dispute resolution in the securities industry.
The bill voids existing mandatory arbitration agreements, with an exception only for arbitrations already initiated.
Section 3(b) and Section 5(b)
Why it matters:While technically an 'application' clause, the retroactive invalidation of existing contracts is a highly significant policy choice. Its placement might be considered standard but its impact is profound.
Case for: Proponents argue that without voiding existing agreements, the bill would take years, if not decades, to fully protect investors, as many are already bound by such clauses. They see it as essential for immediate and comprehensive investor protection.
Case against: Opponents would strongly argue that retroactively voiding contracts is a dangerous precedent that undermines legal certainty and the sanctity of agreements. They contend it could lead to a flood of new lawsuits and significant financial liabilities for firms based on past conduct and agreements that were legal at the time.
Estimated impact: This retroactive application could significantly increase litigation risk for financial firms for disputes arising from agreements entered into prior to the bill's enactment, potentially affecting a vast number of existing customer and client relationships.