In­dus­try is brac­ing for the Equifax ef­fect

Ar­bi­tra­tion clause in the cross­fire after the hack of one of the big credit bu­reaus.

Credit Union Journal - - Front Page - BY IAN MCK­ENDRY

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.”

CAL­EN­DAR UN­CLEAR

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.”

Equifax set up a web­site for con­sumers to en­ter their last name and the last six dig­its of their So­cial Se­cu­rity num­ber to de­ter­mine whether their ac­count in­for­ma­tion had been com­pro­mised. Us­ing the ser­vice also in­cluded opt­ing into an ar­bi­tra­tion agree­ment out­lined in a small Terms of Use hy­per­link at the bot­tom of the web­page.

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.”

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