Equifax breach fuels federal fight over restrictive arbitration clauses

CFPB image

The Equifax data breach is being cited as a perfect argument against restrictive arbitration clauses that force consumers to give up their rights.

Equifax is now reported to be named in at least 32 class action lawsuits over the breach, and how it's been handled.

The outcry over arbtiration clauses surfaced shortly after the company went public about the breach last Thursday.

Consumers found that by enrolling in Equifax's free credit monitoring and identity protection service, TrustedID, they would be agreeing to settle any disputes though arbitration and thereby waive their right to join class action lawsuits.

A new federal rule, scheduled to take effect next March, would restore consumer rights to ban together sue. But that rule is under fire in Congress.

Virtually every financial services company has similar arbitration language. If you have a credit card, a debit card, a bank account - any agreement with a financial instituion- chances are you automatically agreed to settle all disputes through binding arbitration- which means an outside party decides who wins.

Consumer advocates say that works against you.

"Often times the corporation chooses the arbitrator," said Remington Gregg a consumer rights attorney with the non-profit group Public Citizen. "There aren't many arbitration companies out there, so they are often looking for repeat business. And they want to make the company's happy."

The Arbitration Agreements rule, finalized this summer by the Consumer Financial Protection Bureau, prohibits arbitration clauses that bar your participation in class action lawsuits against a financial services provider.

The new rule also requires companies to submit their dispute arbitration records to the CFPB. Right now, the arbitration information is kept secret.

But the pending changes are the subject of a congressional move to reverse the rule. The House voted to repeal the new rule in July. If the repeal effort clears the Senate, the rule is out.

Supporters of change say widespread furor over the Equifax data breach, and the company's initial arbitration language limiting your right to class action, should help convince the Senate that consumers' legal rights should be restored.

Opponents of the CFPB Arbitration Agreements rule argue consumers don't really benefit from class actions because only a small percentage of consumers ultimately benefit, with the average consumer gettings about $32, while trial lawyers walk away with millions.

Opponents say consumers will also be hit with new fees to help pay for costly class action cases.

Class action lawyers counter that group lawsuits are often the only way to force financial institutions to stop abusive behavior.

They say big corporations know that most consumers on their own don't have the time, money or endurance to take a business to court over excessive fees or unfair pactices, so most consumers just give up. Consumer advocates say when the little guy can join other consumers fighting the same problems, the balance of power is more fair.

However you see it, you're being urged to contact members of the Senate now and weigh in, as they approach a deadline to take a vote and repeal the Arbitration Agreements rule.

close video ad
Unmutetoggle ad audio on off