Congress takes Wells Fargo, Equifax to task; now it must act

Republicans and Democrats have found something they enjoy doing together — raking Wells Fargo and Equifax over the coals. 

At a Senate Banking Committee hearing last week, their joint target was Wells Fargo CEO Timothy Sloan, summoned back to explain the sharply increased victim toll and ever-expanding scope of his company misdeeds.

Sloan portrayed Wells Fargo as a humbled company on the path to recovery, but lawmakers of both parties questioned whether a 30-year insider was really the right guy to lead a corporate cleanup.

“If you haven’t changed the people, it’s quite difficult to change the culture,” Sen. Tim Scott (R-S.C.) observed, echoing the sentiments of Sen. Elizabeth Warren (R-Mass.), who told Sloan that, “Wells Fargo needs to start over, and that won’t happen until the bank rids itself of people like you.”

Equifax CEO Richard Smith endured a grilling that was equally bipartisan and considerably more prolonged. Testifying on three successive days before three congressional committees, Smith was repeatedly challenged over the practice of charging consumers to monitor misuse of their credit records and purge errors.

“I don’t pay extra in a restaurant to prevent the waiter from spitting in my food,” Sen. John Kennedy (R-La.) pointed out. 

But now what? Will lawmakers actually do anything about the problems they railed against?

Thursday, Rep. Patrick McHenry (R-N.C.) introduced a bill that would subject the “Big Three” credit bureaus, Equifax, Experian and TransUnion, to regular cybersecurity monitoring and phase out their use of Social Security numbers. Those are sensible but modest steps. 

A tougher and more important test of congressional resolve involves the forced-arbitration clauses that both Equifax and Wells Fargo have used for years to stifle consumer complaints and keep illicit practices under wraps. Forced arbitration is a rigged game, with the firms picked and paid by the companies. In the great majority of cases, class-action lawsuits provide the only credible means of redress. 

On this question, however, Rep. McHenry and a majority of his fellow House members have already made the wrong choice. In July, they voted to block a Consumer Financial Protection Bureau rule restoring the ability of consumers to band together and take banks, lenders and credit bureaus like Equifax to court.

Now it will be up to Senators to reject a similar rule-killing measure, summoning the courage to defy a massive campaign by Wall Street and the financial lobby. Just as important, they must end their craven attacks on the CFPB itself. Credible champions of financial consumers don’t keep voting to slash the funding and authority of the agency that’s been defending them. 

When it comes to Equifax and the credit reporting industry, the first priorities are clear — letting the CFPB’s arbitration rule go into effect, making sure that the victims of Equifax’s massive data breach are made whole and guaranteeing the right of consumers to freeze their credit reports without charge. Free credit freezes should be a bipartisan no-brainer.

It’s also time to challenge a fundamentally wrongheaded business model in which the credit bureaus get corporate customers to pay for information gathered without consumers’ consent and then ask consumers to pay for special “protection.”

Besides being a raw deal for consumers, this setup leaves the credit bureaus with no incentive to care about security and accuracy. Nearly one-in-five credit reports contain errors serious enough to cause financial damage. 

Congress should demand wholesale reform, perhaps along lines proposed by Rep. Maxine Waters (D-Calif.) and Sen. Brian Schatz (D-Hawaii). Waters’ bill would expedite dispute resolution and make companies, rather than consumers, responsible for the accuracy and completeness of data.

It would also protect victims of predatory and abusive lending and debt collection and curb the use of credit checks for employment. Schatz’s measure includes similar safeguards and calls for a study of European-style public credit registries.

Rep. Joe Barton (R-Texas) has come up with another worthy idea: stiff financial penalties for companies that fail to prevent more big data breaches.

“You might pay a little bit more attention to security if you had to pay everybody whose account got hacked a couple thousand bucks,” Rep. Barton told former Equifax CEO Smith.

On the Wells Fargo front, five legislators — no Republicans yet — have endorsed a bill introduced by Rep. Waters to enable the breakup of big banks implicated in repeated violations of consumer rights and ease criminal prosecutions of executives. Bipartisan excoriation is good. Bipartisan action would be better.

Jim Lardner is a senior fellow at Americans for Financial Reform, a progressive organization which advocates for financial reform in the United States, including stricter regulation of Wall Street.