The Equifax Inc. (EFX) data breach that left 143 million Americans' information at risk has thrust the spotlight back onto a consumer protection rule Congressional Republicans are pushing to roll back.
The Consumer Financial Protection Bureau (CFPB) in July finalized a rule that would ban mandatory arbitration clauses that force consumers into arbitration and block them from joining together to file a class-action suit. The move was met with near-immediate pushback from Republicans, who quickly took steps to repeal the rule. But the Equifax data breach might make rolling back the regulation much less politically palatable for the GOP.
Equifax raised eyebrows after news of the data breach broke for including forced arbitration clauses in the free credit monitoring and identity protection services it offered to customers after the breach was revealed. The Atlanta, Georgia-based consumer credit reporting company removed the clause after public outcry, and it has been hit with at least 23 class-action lawsuits since, according to USA Today.
Equifax's cybersecurity nightmare has affected 80% of Americans, according to estimates from Washington, D.C.-based Height Securities, LLC. And it's given new importance to the arbitration rule out of the CFPB.
The House of Representatives in July voted to pass a resolution to repeal the rule under the Congressional Review Act, which gives Congress the ability to nullify agency regulations with a simple majority to scrap recently-made rules. Senate Banking Committee in Republicans have expressed support for repealing the rule, and the CRA was considered to have a relatively good chance of passing the Senate -- until Equifax.
"It looked like they were on the road to overturning the CFPB's mandatory arbitration clause rule," said Height analyst Edwin Groshans in an interview with TheStreet. "That might be much tougher."
Senate Banking Committee Ranking Member Sherrod Brown (D-OH) in a statement Monday cited the Equifax case as evidence of the CFPB rule's importance. "The fact that it took a public shaming to force Equifax to drop forced arbitration from TrustedID, is further proof why the Consumer Financial Protection Bureau's rule is needed," he said. "Too many financial companies, including Wells Fargo (WFC) , continue to use forced arbitration to block customers from seeking justice once they've been cheated or harmed."
Senate Banking Committee Chairman Michael Crapo (R-ID), who has expressed support for killing the arbitration rule, has not weighed in on whether Equifax changed his thinking. His office did not return request for comment on the matter.
"The winds have shifted," said Rob Long, partner at Bell Nunnally & Martin LLP and former attorney at the SEC, Department of Justice and Financial Industry Regulatory Authority (FINRA). "The CFBP's rule is less likely to be repealed now."
The Congressional Review Act allows for rules to be reviewed for up to 60 legislative days of their enactment, which would put the expiration date on repealing the CFPB rule in October.
"If we had 58 Republicans in the Senate, I would say [repealing the rule] is a done deal, but we don't, it's 52," Groshans said. "Because this is so far into the limelight, it is not likely to go away any time soon."