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Equifax and the CFPB Arbitration Rule: A Tempest in a Teapot

The recent data breach disclosure by Equifax raised an outcry from consumer advocates trying to link the data breach to the Consumer Financial Protection Bureau’s (CFPB) final arbitration rule.  They are portraying this cybersecurity incident as a prime example of why class actions are needed to protect consumers, hoping to persuade the U.S. Senate not to repeal the rule under the Congressional Review Act.  The CFPB rule bars financial services companies from including class action waivers in consumer arbitration agreements beginning on March 19, 2018.

The Senate should disregard their arguments.  While the CFPB arbitration rule covers some credit reporting company activities, it does not appear to cover data breaches such as this one.  Therefore, the Equifax data breach has nothing to do with the CFPB arbitration rule.  In any event, the issue appears to be moot, since according to published reports Equifax has stated that it will not seek to apply its on-line arbitration clause and class action waiver to claims based on the data breach itself.

Consumer advocates have also criticized Equifax for purportedly requiring consumers who may have been affected by the data breach and who want to sign up for the company’s offer to provide free credit protection services to agree to arbitrate claims from those services (unless they exercise their right to opt out of the arbitration clause).  It is unclear whether Equifax in fact will apply the arbitration clause to such claims.  But lost in the hubbub is the fact that claims of this nature would appear to be inherently individualized and not susceptible to class action treatment since the facts pertinent to each consumer’s account presumably will be unique.

Ultimately, this incident exemplifies why the Senate should vote to repeal the CFPB arbitration rule.  The CFPB, the Federal Trade Commission and state attorneys general (most notably Attorney General Schneiderman of New York) got involved almost immediately and will advocate on behalf of consumers more efficiently and effectively than class action lawsuits, without siphoning off a hefty attorneys’ fee if they prevail.

Copyright © by Ballard Spahr LLP

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About this Author

Kaplinksy, partner, New York
Partner

Alan S. Kaplinsky is Co-Practice Leader of the firm's Consumer Financial Services Group, which has more than 115 lawyers. Mr. Kaplinsky devotes his practice exclusively to counseling financial institutions on bank regulatory and transactional matters, particularly consumer financial services law, and defending financial institutions that have been sued by consumers in individual and class action lawsuits and by government enforcement agencies. Visit Mr. Kaplinsky's profile in Wikipedia.

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215-864-8544
Mark Levin, Ballard Spahr Law Firm, Litigation Attorney
Partner

Mark J. Levin is known for his work in complex commercial, insurance, and class-action litigation, with particular experience in consumer finance litigation, the structuring and enforcement of consumer arbitration clauses, and the defense of insurance companies in class actions. He testified in 2007 for the lending industry before a subcommittee of the U.S. House Judiciary Committee at an oversight hearing on whether mandatory arbitration in consumer contracts is fair to consumers.

Mr. Levin has represented banks in defending against the first private class-action lawsuits under the Federal Trust Indenture Act, nuclear power plant owners in a year-long arbitration against an international insurance consortium, and school districts in a major funding lawsuit to recover state funds. He is currently involved in defending banks, other lending companies, and insurance companies in a wide variety of consumer class actions, including numerous class actions brought under the Pennsylvania Unfair Trade Practices and Consumer Protection Law.

215-864-8235