Equifax shows Republicans must end attacks on financial regulation

Equifax shows Republicans must end attacks on financial regulation
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It’s time for the Senate Republicans working to roll back a vital consumer safeguard just issued by the U.S. Consumer Financial Protection Bureau (CFPB) to say “uncle.” After Equifax, the accumulated weight of evidence is just too much, no matter how much congressional opponents of the CFPB may want to please their political financiers.

In July, the CFPB issued a rule prohibiting rip-off clauses — perhaps the single most important tool that big banks and financial companies have used to escape accountability for cheating, conning, fleecing, defrauding and plundering consumers — in the fine print of consumer financial contracts. The common-sense CFPB rule would ban contract terms that prohibit consumers from joining together to hold banks and other financial companies accountable for wrongdoing through class-action lawsuits.

Republicans in Washington aim to overturn the rule using an obscure tool known as the Congressional Review Act (CRA). Shortly after the CFPB finalized its rule, the House of Representatives voted to reverse the agency’s action, and the Senate has until early November to take action. Under the terms of the CRA, opponents of the rule need only garner a majority of votes.

The CFPB acted to adopt the rule after completing the most comprehensive review ever of the effect of rip-off clauses. The agency’s research proved beyond any doubt that in cases with small damages affecting large numbers of people, class-action lawsuits are the only viable remedy for consumers. That makes sense, because there is little point in bringing a case on your own for, say, a $75 injury. In the case of Equifax, 143 million consumers filing separately in arbitration would grind the system to a halt.

The CFPB found that almost no one files individual arbitration cases for small claims, and a mere 25 cases a year involve claims of less than $1,000. Thus, banks and financial firms can get away with small-dollar swindles that can easily total tens of millions or more affecting millions of consumers. Indeed, just five consumers have filed claims against Equifax in arbitration in the last nine years. By contrast, between 2002 and 2012, 32 million consumers a year, on average, were eligible for relief through class-action settlements in federal court, totaling $220 million in payments a year.

The Wells Fargo scandal provided a concrete example of how desperately we need the CFPB rule. Wells Fargo included rip-off clauses in its contracts and relied on such fine-print terms to defeat lawsuits that would have exposed the bank’s millions of fraudulent accounts much earlier. Even more startling, after the scandal became public, Wells Fargo continues to invoke rip-off clauses to block class actions. In this instance, the bank is arguing that consumers should be prohibited from filing class actions regarding accounts they never authorized and even knew about.

Now comes Equifax. The consumer credit reporting company let thieves steal personal identifying information from more than 100 million Americans. To find out if their information is improperly used, Equifax invited consumers to sign up for its TrustedID service. Yet, in one of the more brazen corporate wrongdoer maneuvers in memory, if consumers are victimized by TrustedID negligence or wrongdoing — including perhaps by a subsequent data breach — the original terms of service would have forced consumers into individual arbitration. Even worse, despite some ambiguous statements by Equifax, it is possible that many of the victims of the recent data breach may still be forced into individual arbitration by Equifax’s broader terms of service.

After mass outrage, Equifax removed the rip-off clause from its TrustedID service, although the rip-off clause remains for Equifax’s other consumer services. But it’s the rare case when consumers can generate enough attention to force such a corporate climb down. They need a guaranteed protection of their right to hold corporations accountable for wrongdoing through class-action lawsuits. That’s why it’s essential that Congress leaves in place the CFPB’s rule against rip-off clauses.

The opponents of the CFPB rule have worked hard for their patrons, which include the two dozen Senate co-sponsors of a resolution to overturn the CFPB action, who over their political lifetimes collectively received more than $11 million in campaign contributions from commercial banks and more than $100 million from the financial sector overall. Equifax has contributed more than $500,000 to Republican lawmakers since 2010. But after the Equifax outrage, now it’s time to throw in the towel. At some point, the evidence and the public fury becomes too overwhelming to continue. That point is now.

Robert Weissman is president of Public Citizen, a nonprofit organization founded in 1971 to ensure all Americans have a voice in government.