Equifax Breach Complicates Banks' Efforts to Fend off Lawsuits
(Bloomberg) -- JPMorgan Chase & Co., Wells Fargo & Co. and Citigroup Inc. are defending their practice of requiring customers to resolve disputes through arbitration, just as Equifax Inc.’s massive data breach complicates efforts to fend off rules that would make it much easier for consumers to sue banks.
Last month, U.S. Senator Elizabeth Warren, one of Wall Street’s loudest critics, sent letters to 16 of the biggest U.S. lenders demanding information on how they use mandatory arbitration. Their responses, released on Tuesday, show many banks argue it benefits consumers by frequently leading to bigger payouts and quicker resolution of complaints than lawsuits do.
“We have concerns that the CFPB’s arbitration rule could constrain our ability to continue to offer this convenient, simple and efficient dispute resolution process to our customers,” said Bill Johnson, an executive vice president at Citigroup.
The debate over forced arbitration has been heating up in Washington ever since the Consumer Financial Protection Bureau approved a regulation in July that restricts financial companies from mandating its use. While some Republican lawmakers had been trying to kill the rule before it takes effect next year, their effort now faces headwinds due to how Equifax responded to its hack.
After disclosing last week that 143 million Americans’ personal data had been stolen, Atlanta-based Equifax offered free credit monitoring as an overture to angry consumers. The catch: If they signed on for the service they had to settle any future grievances through arbitration. Equifax changed its policy following a backlash from customers and Democratic lawmakers such as Warren.
Senate Banking Committee Chairman Mike Crapo, an Idaho Republican, conceded Tuesday that Equifax could make it more difficult to secure enough votes in the Senate to repeal the CFPB rule. The House passed legislation in July to scrap the restriction on forced arbitration.
“Obviously, it’s becoming an issue,” Crapo told reporters in Washington. “Some of the senators are raising the fact that Equifax had arbitration-clause language in some of its products, they are trying to make a connection there. I don’t know whether that connection is impacting the vote."