Industry is bracing for the Equifax effect
Arbitration clause in the crossfire after the hack of one of the big credit bureaus.
WASHINGTON — THE MASSIVE BREACH at Equifax is likely to hurt — and may ultimately doom — efforts by Republicans to overturn the Consumer Financial Protection Bureau’s rule banning mandatory arbitration clauses.
In order to compensate potential victims of the breach, which compromised the personal data of more than 143 million consumers, Equifax is offering free credit monitoring services through its Trustedid program as protection.
But keen observers rapidly figured out that the “free” service came with catch — a mandatory arbitration clause that would prevent consumers from filing a class action suit against Equifax for using the service. (The arbitration clause would not cover damage from the breach.) The company later changed gears, saying customers signing up for the service would not waive the right to a class action suit. But by then the damage was already done.
That clause was picked up by Senate Democrats, who said it was exactly why the CFPB’S rule, finalized in July, should not be overturned by Congress.
“If Equifax is genuine about wanting to protect customers, it must remove forced arbitration immediately from Trustedid and any other services offered to victims of the data breach,” Sen. Sherrod Brown, the top Democrat on the Senate Banking
Committee, said in a statement.
Sen. Elizabeth Warren, D-mass., blasted the clause on her Twitter account, noting that the “new rule would stop companies like Equifax from avoiding legal accountability like this — as long as [the] GOP doesn’t reverse it.”
The Equifax revelations come at exactly the wrong time for Republicans, who had been hoping to push ahead with a vote to overturn the rule. Under the Congressional Review Act, Republicans just need a majority vote to repeal a rule within 60 legislative days.
Senate Banking Committee Chairman Mike Crapo, R-idaho, sounded upbeat earlier in the week about the chances for doing so despite signs that there may not be enough GOP votes.
“I think the answer is yes,” Crapo told reporters when asked if he thinks Republicans have the votes necessary to overturn the CFPB’S rule. “I would like to do it as soon as possible and that is my expectation.”
One problem, however, is that it is unclear exactly when that 60-day legislative calendar ends. Some estimates say that deadline is as early as mid-september, while others say it is more likely October or even possibly early November.
Crapo must also find Senate floor time to pass a repeal vote, a precious commodity when so many other issues are pressing before Congress.
Passing the resolution “is all contingent on us making sure we have the votes and we have an opportunity,” Crapo said.
At least one Republican (Sen. Lindsay Graham, R-S.C.) has already defected — and Crapo can only afford to lose one more. Meanwhile, the votes of moderate Republicans such as Sens. Lisa Murkowski of Alaska and Susan Collins of Maine are unclear, and Democrats so far appear uniformly opposed.
The Equifax breach — and its controversial mandatory arbitration clause — could push some or all of these Republicans to vote against repeal.
“The optics of this situation change the congressional calculus regarding the arbitration CRA and lessen the likelihood of reversal,” said Isaac Boltansky, an analyst at Compass Point Research & Trading.
One problem moderate senators have is that any action under the Congressional Review Act would prevent the CFPB from writing another rule on mandatory arbitration clauses. That leaves lawmakers uneasy, and sets them up to take the blame in cases like Equifax.
Amanda Werner, campaign manager at the consumer group Americans for Financial Reform and the liberal watchdog group Public Citizen, said “it is pretty appalling that Equifax would exploit consumers’ need for identify theft protection in the wake of this crisis they created in order to avoid accountability.”
Jeff Sovern, a law professor at St. John’s University in New York, called Equifax’s use of arbitration clause “diabolical” and “clever lawyering.”
In response to the outcry, the company later issued a statement saying there would be no waiver of rights for individuals signing up.
Sen. Elizabeth Warren said the CFPB’S rule banning mandatory arbitration clauses “would stop companies like Equifax from avoiding legal accountability like this — as long as [the] GOP doesn’t reverse it.”