Equifax fallout underscores need for jury trials
Congress’ attempt to repeal the arbitration rule is misguided — and not what Americans need or want
Richard Smith, Equifax’s chairman and chief executive, stepped down from the company Tuesday, a week after the public learned that the security breach at one of the nation’s three credit-reporting agencies — affecting half of the nation’s adult population — was even more serious than the company first disclosed.
As early as March, nearly three months before the July breach that Equifax disclosed, hackers had gained access to the personal information, including Social Security numbers.
Not only did Equifax fail to protect its customers’ information by planning for a breach on this level, it offered a slapdash solution that had its own serious bugs. Despite the company’s terrible response, Smith will still receive his pension of $18 million and potentially more.
That’s the problem. This is just a passing moment to Equifax: a blip of bad public relations and short-lived demands for accountability.
For the 143 million Americans potentially affected, it’s not a moment, but a nightmare that could reverberate for years. They must now obsessively monitor personal credit reports and in extreme cases, change their Social Security numbers. And because of Equifax’s legal maneuvering, many may never see a resolution to this nightmare.
Many U.S. companies, including Equifax, have required people to agree to settle disputes by arbitration and forgo their right to trial by jury. Big corporations have poured money into the political system to win less regulation, and this investment has paid off: mandatory arbitration clauses are becoming the norm.
It is common for many companies — cable TV companies, cellphone providers, etc. — to have clauses in their agreements (those long agreements consumers sign off on without ever read- ing) specifying you will never have the right to sue them. By using their services and signing over your information, you can never sue them, even if you were wronged.
From our years of experience – one of us was a former executive at the world’s largest asset manager and the other leads the federal policy work of an organization that protects consumers — we know that arbitration forums rule in favor of companies much more often than in favor of consumers for a variety of reasons, and other than a few bad days of PR, companies have very little at stake in arbitration.
Consumers bear more and more of the risk, while companies function with less and less accountability.
Equifax has fought to keep these mandatory arbitration clauses. They even tried to include them in the free credit monitoring and identity protection services they offered to victims of the recent hack. And it is no wonder as to why.
However, there is a way for consumers to seek a true solution to their financial woes.
Born in the wake of the Great Recession out of the 2010 DoddFrank financial law, the Consumer Financial Protection Bureau (CFPB) has fought to help regular Americans fight back against these arbitration clauses. In July, after years of research and work, the bureau finalized a rule that would limit mandatory arbitration clauses. While top executives have fancy lawyers and campaign donations to loosen restrictions, the American public has the Consumer Financial Protection Bureau to defend their right to trial by jury, as guaranteed by the 7th Amendment of the Constitution.
The bureau’s regulation — much like the bureau itself — has been under vociferous attack by Republicans. Almost immediately after it was introduced, the House voted to repeal the rule, and now the Senate is debating its fate and could vote on it as early as this week.
It should come as no surprise that corporations such as Equifax want to repeal the bureau’s regulation: It would allow millions of Americans an opportunity to seek justice in the courts, to band together as groups to file class-act lawsuits that can hold big companies such as Equifax accountable for their actions. It would also prevent financial services companies and big banks from sweeping incidents like these under the rug and from allowing predatory practices to continue.
This extreme agenda to repeal the arbitration rule and halt the work of the Consumer Financial Protection Bureau is overwhelmingly unpopular: The Pew Charitable Trusts found that nine in 10 consumers want to be able to participate in group lawsuits.
If there is one message that voters wanted to send to Congress in the 2016 election, it was that they were sick and tired of business as usual in Washington. Americans are demanding a government that works for them, not for Wall Street.
Repealing this rule and weakening the bureau overall would take America in the wrong direction and sow the seeds for more financial scandals.
Morris Pearl, a former managing director of Blackrock, is chairman of Patriotic Millionaires. David Newville is the director of federal policy for Prosperity Now, formerly known as the Corporation for Enterprise Development (CFED). Nine in 10 consumers want to be able to participate in group lawsuits, The Pew Charitable Trusts found.