Equifax data breach has major FinReg consequences

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9.11.17 - Top executives at Equifax may be the only people in Atlanta right now who have more than just the imminent arrival of Hurricane Irma on their minds. As the massive storm ravages Florida and begins its churn northward, the credit reporting company is confronting a different type of devastation, one resulting from a data breach that exposed detailed personal information about 143 million consumers.

Outside of the potential harm done to individual consumers, there are two major impact zones resulting from the hack of Equifax’s systems. The first and most obvious is focused on the company’s own business and reputation. The second is on the financial industry as a whole, which had been benefiting from a strong deregulatory push in Congress, something that is now likely to be severely weakened.

In terms of Equifax’s own reputational problems, well, the company’s response to the data breach may well become a business school case study in how not to respond to a crisis.

The initial reports last week were bad enough. They included ill-informed call center workers and a practically inaccessible online resource center for victims and people trying to figure out if they were victims, both piled on top of the extraordinary delay in revealing the breach. (There was also the embarrassing revelation that top executives sold $1.8 million in company stock after the breach was discovered, but before it was made public. The company insists the executives were unaware of the breach at the time.)

As time went on, though, the company’s response began to look even worse.

Over the weekend, for example, victims of the breach told the New York Times that when they signed up for the Equifax assistance program, in addition to being asked for the same sort of information that had already been stolen, they were issued a PIN number. Observant victims noted that the “secure” PINs were apparently generated by an algorithm that used the date and time of the request to created the number.

“The whole point of a 10-digit PIN is that it’s supposed to be hard to guess,” one victim complained to the paper. “And then, they have this totally transparent algorithm for assigning them.”

The company also demanded that people signing up for its Trusted ID program first agree to an arbitration clause waiving their rights to take legal action against Equifax over any problems with the service (not, as some outlets mistakenly suggested, for the effects of the breach as a whole.)

This leads into the second disaster zone resulting from the hack.

As American Banker’s Ian McKendry reports, the requirement struck a nerve with lawmakers who were already dubious about Congressional efforts to roll back regulatory efforts on mandatory arbitration agreements.

“The massive breach at Equifax is likely to hurt — and may ultimately doom — efforts by Republicans to overturn the Consumer Financial Protection Bureau’s rule banning mandatory arbitration clauses,” he writes.

“The Equifax revelations come at exactly the wrong time for Republicans, who had been hoping as late as Thursday to rapidly push ahead next week on a vote to overturn the rule,” he writes. “Under the Congressional Review Act, Republicans just need a majority vote to repeal a rule within 60 legislative days.”

In addition, the Wall Street Journal reports, prior to the announcement of the breach, Congress was in the midst of debating an effort to roll back rules that put penalties in place for credit reporting firms that harm customers by disseminating incorrect information about their credit histories.

“The bill would cap potential damages that consumers could win against credit-reporting firms in a lawsuit, and eliminate punitive damages against them entirely,” the paper notes.

However, in the wake of the data breach, and Equifax’s less-than-consumer-friendly response, lawmakers might find their sympathy for the plight of credit bureaus waning then next time the issue comes up for discussion.

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Cyber security Hacking Equifax