Robinhood users recently took to arms when the company made the unpopular move to restrict trading in several stocks, including GameStop (NYSE: GME), AMC Entertainment Holdings (NYSE: AMC), Express (NYSE: EXPR), Group of nude marks (NASDAQ: NAKD), and Nokia (NYSE: NOK). The move came as a result of the increased capital requirements of the Depository Trust & Clearing Corporation, which provides clearing and settlement services for stock transactions.

On this clip of Motley Fool Live registered on 28 january, “The Wrap” host Jason Hall and Fool.com contributors Danny Vena and Dan Caplinger explained how Robinhood is allowed to take such a step.

Jason Hall: Great. Very well. The first and most popular question here, Dan Caplinger, is capital growth, and it makes sense to revive us. Jason McKenna. What a beautiful name, Jason. What a big, big name. “Please explain why it is legal for Robinhood to freeze certain accounts from buying a stock while allowing others to freely close their positions to minimize their losses while preventing the other from profiting from them? “

Of course, it’s not just Robinhood. This is something i think [Morgan Stanley‘s (NYSE:MS)] E * Trade, Interactive brokers (NASDAQ: IBKR), certainly several brokers have done it today with the whole GameStop saga unfolding. Dan Caplinger, tell us about that, please.

Dan Caplinger: Well, I was curious. I watched things. I am a lawyer by training, I do not give any legal advice. Danny just posted something the other minute about a class action lawsuit that maybe you could post on the chat.

Jason Hall: I just dropped it.

Dan Caplinger: Impressive. If there is a factual basis for this, I am not 100% sure. But the first thing I always think of when something happens with a business relationship is that I look at the foundation of the business relationship. It’s in the customer agreement.

These days when you sign up for things there is often a 1,500 page document that hardly anyone ever pays attention to. Just scroll down and click where it says “I agree”. You never think about it again.

But in that deal there is a whole bunch of things that you have agreed to in exchange for using whenever it comes to service and Robinhood has this customer deal.

I look and on page 6 of this 33 page client agreement in section 5, subparagraph F, talks about client representations and responsibilities. He said, “I understand that Robinhood may, at any time, in its sole discretion and without notice, prohibit or restrict my ability to trade in securities.”

Basically, in exchange for using Robinhood’s services, you’ve agreed that if Robinhood is going to say to you, “No, we’re not going to let you buy this stock. We’re not going to let you just sell that stock short. We “won’t let you cover your position” it has the right to do.

Now, how many people have read this in the agreement? Probably zero. I only read it now when I was looking for it. I would say pretty much every brokerage deal you have, not just Robinhood, probably every broker, has something very similar that gives the broker the discretion to do these things.

Jason McKenna’s question, “Well, why is it fair to do it for some people and not for others?” This, I wonder. There are legal prohibitions against discrimination, but the question is whether you are a protected class. Certainly, the traditional investor versus the Wall Street investor is not a protected class recognized by the courts.

I would be surprised if this class action goes further than all the class actions you have filed against every stock market action. Whenever something goes wrong or goes well against someone betting it, it goes right or wrong respectively.

It’s frustrating. But that’s the influence that the companies you do business with have on you. This is something you have to get used to because just about all of these agreements, whether it’s on the mobile device you use, the internet services you have, they all have that language there to protect them and give them a lot. discretion and do things they don’t usually do. When they do, everyone is surprised. But it’s right there in the agreement that says they can do it.

Jason Hall: The Overton window has changed so much because every time you download an app, every time you install something on your smart TV, all of those things you do every time you do any of these transactions, every time you do any of these transactions. time. You create an account on a new website. It’s the same every time, and we all do the same thing. We run down, check the necessary boxes, then click “I agree”. The fact that neither of us has read it does not exempt us from this contract being in force. Here we are. That’s not a very satisfactory answer, Dan. Go on. You have to do better than that next time.

Dan Caplinger: I am sorry.

Jason Hall: The truth sometimes hurts.

Dan Caplinger: There are situations where you are required to enter into a contract which is unenforceable because it is a membership contract. But willingly entering into a brokerage relationship with someone who offers you free stock trading, come on, there’s a price to pay for things. If it’s free in a way, then there’s something you’re paying for elsewhere.

I am skeptical about everything and it sometimes makes me have a negative attitude when I should have a positive attitude. But in this case, it’s totally consistent with the way things are going. On page six of the customer agreement at the bottom, it’s a big F, Section 5 Purchases. Jason, if anyone asked where that was. This is where it is.