For more on Georgetown Law Technology Reviews coverage of the Equifax breach, read how the “Equifax Breach Highlights Regulatory Gaps in Data Privacy Protection,” and for more a technical description of the hack, read “What Happened at Equifax, and Should It Have Been Ready?”
On November 1, 2017, President Trump signed a bill into law repealing the arbitration rule promulgated by the Consumer Financial Protection Bureau (CFPB).1 The arbitration rule prohibited financial service providers from using arbitration clauses to bar consumers from filing or participating in class action suits.2 The rule was submitted by the CFPB in July, after the Bureau conducted an exhaustive empirical study of the arbitration clauses of consumer financial agreements and submitted the rule for public comment. The repeal of the arbitration rule limits Equifax victims’ ability to pursue class action damages or agreements to change future company behavior.
Arbitration is an alternative to litigation for resolving a dispute—instead of a judge or jury, an arbitrator decides the dispute between the parties. Arbitration is generally less formal, has limited discovery, and the final decision is unappealable. Class actions, which are lawsuits that allow multiple people to collectively sue for suffering the same harm, are more complicated, longer, and more expensive than arbitrations. Yet class action suits allow consumers to bring collective claims where the individual harm would be too small to justify a lawsuit.3 Class action suits can also force the defendant to agree to change their future behavior as a remedy.4
The CFPB was created by the Dodd-Frank Wall Street Reform and Consumer Protection Act, to “promote fairness and transparency for mortgages, credit cards, and other consumer financial products and services.”5 Pursuant to § 1028(b) of the Dodd-Frank Act, the CFPB conducted the most comprehensive empirical study of consumer financial arbitration to date, culminating in a 728-page report after a two-year period of study.6
The report found that tens of millions of consumers are subject to arbitration clauses.7 Consumers are generally unaware of whether they are subject to an arbitration clause, and troublingly, most consumers subject to arbitration clauses wrongly believed they could participate in a class action suit.8 Once consumers are blocked from suing by an arbitration clause, few actually end up pursuing arbitration.9 In the two-year study period, only seventy-eight arbitration claims were resolved in favor of the consumer, resulting in $400,000 in total relief.10
In that same period, class action settlements resulted in $2.7 billion in total relief, and included agreements from the companies to change future behavior toward consumers.11
Following the study, the CFPB promulgated its final arbitration rule, which would regulate arbitration clauses for covered financial products and services.12 The rule prohibits financial service providers from using arbitration clauses to bar the consumer from filing or participating in a class action suit,13 and also requires the covered financial service providers to submit records of any arbitration to the CFPB.14 The rule does not ban arbitration clauses, rather it prohibits arbitration clauses from impeding consumer participation in class action suits.
The CFPB completed and evaluated its two-year study, then proposed the arbitration rule; after more than a year for public comment and proposals, the bureau promulgated its final rule on July 19, 2017.15 The next day, thirty-three house Republicans introduced a bill to repeal the arbitration rule. On October 24, 2017, the Senate passed the bill, by a tie-breaking vote from the vice president, to repeal the rule. The White House issued a statement supporting the repeal, claiming that “under the rule, consumers would have fewer options for quickly and efficiently resolving financial disputes.”16 Yet in effect, the rule expands the options available to consumers to allow both arbitration and class action litigation. It is unclear why the White House believes this would create “fewer options” for consumers. On November 1, 2017 the president signed the bill into law.
It is yet unknown how many of Equifax’s customers are barred from class action suits by arbitration clauses. What is known is that when Equifax offered breach victims a free credit monitoring service, buried in the terms of service was an arbitration clause baring participation in a class action suit.17 It is likely that many of Equifax customers are subject to arbitration clauses. With the repeal of the arbitration rule, victims of Equifax’s breach will have one less avenue of legal recourse to compensate for any damage their stolen identity may bring.