Edward Jones, a broker-dealer headquartered in Saint Louis, Missouri, was censured and fined $125,000.00 by Financial Industry Regulatory Authority (FINRA) based upon consenting to findings that the firm overcharged customers pertaining to the interest rates on customers’ loans. Letter of Acceptance, Waiver and Consent, No. 2016048760501 (Feb. 1, 2017).
According to the AWC, in January of 2014, the firm switched the way interest rates were determined on customers’ margin loans. The firm reportedly started to assess interest rates based upon the total value of the customers’ assets in a Relationship Pricing Group, which also considered related party accounts. However, the firm developed a discrepancy between how the Relationship Pricing Group was determined, wherein the firm’s statement of credit terms defined the Group in a broader fashion than the firm’s systems which computed interest rates.
The AWC stated that the firm’s discrepancy in this regard caused thousands of accounts to be omitted from the Relationship Pricing Group, resulting in customers being assessed a higher level of interest than the firm and customers contractually arranged for. The AWC revealed that between January of 2014 and January of 2016, a total of 6,127 of the firm’s customer accounts were overcharged by an estimated $708,0000.00.
The AWC additionally revealed that the firm’s systems were not tested by the firm to ascertain whether the customers’ assets were properly grouped for purposes of determining the appropriate rate of interest to be charged. The firm reportedly relied upon a flawed monthly report provided via one of the firm’s vendors. Further, no supervisors were instructed by the firm to utilize the reports to assess how interest rates had been assigned to customers. Consequently, FINRA found that the firm did not properly supervise its process for determining margin loan interest to be charged to customers, which was conduct violative of FINRA Rules 2010, 3110(a), and NASD Rule 3010(a).
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