The Equifax Breach: Part Three Analysis

As the Equifax breach has developed recently, another issue has come up, namely the arbitration provision within its website, which has caused consumer outrage and confusion. So, why does this provision matter? If consumers want to get their credit frozen, or check to see if they were affected, surely Equifax wouldn’t add insult to injury to the consumers who are suffering from its mistakes. Certainly, it would appear to be bad business to do so, or at least, unwanted attention. However, Equifax cannot be said to avoid adding insult to injury. Instead, Equifax has implemented that arbitration provision, and later removed it. So again, why would Equifax implement this provision? What impact might it have on the consumer? Why might this be important for businesses everywhere to observe?

What is the arbitration provision?

The arbitration provision that had insulted many consumers was attached to Equifax’s offer of free credit monitoring. In exchange for the service being performed (after the security breach) Equifax demanded that consumers settle any dispute with them through arbitration. In general, arbitration is a private and less costly way to settle disputes outside of the courtroom. While the results of the arbitration may be binding, it gives broader latitude to discovery, time, and may be faster and less formal than a formal trial.  While Equifax later clarified this provision would not apply to the current breach, however, nevertheless consumers were upset at the revelation.

The effect of such an arbitration clause is generally understood to prevent class actions. Instead of an entity facing hundreds of thousands of claimants, it would have the opportunity to break up the claims. This is especially relevant here, which affected a large swath of the American population. If a class action lawsuit were to be brought forward and succeed, it could be incredibly costly towards Equifax.

Why might it be bad for businesses?

In short, the answer is “regulation.” As many of these arbitration agreements may be buried deep within the terms of use for a website or the contract for a service, individuals may not be immediately aware that class actions are effectively waived. These waivers may not have been properly negotiated with the consumer and instead the agreement may simply state: “If the user decides to use our products or services, then the user is bound by these terms.”  Because of this, terms of use or for online services are described as “clickwrap” agreements and the courts have generally upheld such non-negotiated agreements, so long as they are not unduly oppressive.

However, with Equifax, it is plausible that it gives better reason for Congress to pass legislation on the matter. This may effectively counter a recent trend of cases, such as DirecTV, Inc. v. Imburgia, et al., which maintained the Federal Arbitration Act’s supremacy. This is especially relevant as it involved a class-action waiver within the contract.

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