Protection of Servicemembers, Equifax Data Breach Provide Mistaken Justifications For CFPB Arbitration Rule
In a mistaken attempt to justify the CFPB’s arbitration rule, supporters are pointing to the need to protect the rights of military servicemembers and the recent Equifax data breach. On September 20, Democratic Senator Jack Reed will host an event entitled “The CFPB Forced Arbitration Rule,” which is described as a briefing for Senate staff and press members.
According to the event announcement, the participants will discuss how the CFPB’s arbitration rule “restores the rights of servicemembers, military families and consumers.” Obviously overlooked (or ignored) by Senator Reed and the other participants is the fact that federal law already prohibits the use of arbitration agreements in most consumer credit contracts entered into by active-duty servicemembers and their dependents. More specifically, this prohibition is contained in the Military Loan Act.
Since 2007, creditors have been prohibited by the MLA from including arbitration agreements in contracts for consumer credit extended to active-duty service members and their dependents where the credit is a closed-end payday loan with a term of 91 days or less in which the amount financed does not exceed $2,000, a closed-end vehicle title loan with a term of 181 days or less, or a closed-end tax refund anticipation loan. In 2015, the Department of Defense adopted a final rule that dramatically expanded the MLA’s scope.
The final rule extended the MLA’s protections to a host of additional products, including credit cards, installment loans, private student loans and federal student loans not made under Title IV of the Higher Education Act, and all types of deposit advance, refund anticipation, vehicle title, and payday loans. The rule already became effective for transactions or accounts consummated or established after October 3, 2016 for most products, and will become effective for credit card accounts consummated or established after October 3, 2017.
The event announcement also indicates that there will be a discussion of how the arbitration rule impacts Equifax customers. As we have previously commented, the attempt of consumer advocates to link the Equifax data breach to the CFPB’s arbitration rule is a tempest in a teapot. The breach has nothing to do with the arbitration rule. While the rule covers some credit reporting company activities, it does not appear to cover data breaches such as this one.