By Thomas J. Edwards
When corporations and businesses break the law or otherwise breech the public trust, the government steps in through the courts to rein in the problem. Following much hand-wringing and moral posturing, the government generally allows the lawbreaker to “settle” the charges rather than fight them in court.
That strategy generally put all taxpayers on the hook for the “penalty” costs. The courts routinely approves complex agreements struck behind closed doors that for the most part require taxpayers to absorb the bulk of settlement costs even though the U.S. Tax Code bans deducting any fine or similar penalty paid to a government for the violation of any law.
The tax reform law adopted by Congress in December 2017 supposedly tightened the civil and criminal penalty sections of the code. But loopholes continue to run rampant. That legal sieve could reap considerable financial benefits for Equifax, the credit reporting goliath most recently caught up in the federal government’s legal tentacles.
Equifax has agreed to pay $700 million as a penalty for failure to properly safeguard its computer files against hacking. Cyber terrorists subsequently stole the personal information of 147 million Equifax customers in 2017. The estimated real amount to adequately reimburse all those hacked amounted to $70 billion but that amount would have destroyed a major corporation.
Instead, the government’s Consumer Financial Protection Bureau negotiated a settlement that lets Equifax substantially off the hook. The $700 million settlement will hardly make a dent in Equifax’s bank account. If all of the amount would go to reimburse the 147 million people who lost their personal information to hackers. each person would receive less than $7.
But the CFPB guessed that only about 7 million customers could ever prove that their identities had been shattered by the theft — the operative theme in the settlement is “prove.” The hackers have never been caught. So it is impossible to know how hacked information may be used. Consequently, the financial provisions of the settlement is primarily guesswork and the CFPB creates several hoops consumers must jump through to receive any type of reimbursement for losses
The government wants you to believe each person could get up to $500 to cover what is spent taking preventative measures dealing with identity theft. You don’t have to account for up to 10 hours wasted on identity theft remedies to receive $250. If you had to agonize for more than 10 hours though, you must certifiably prove the additional turmoil.
The settlement will pay up to $20,000 for “documented” loses fairly traceable to the breach,” including everything from credit monitoring services to lawyer or accountant fees. But you have to prove every step of the process and your time consumed and agony suffered are not eligible for reimbursement.
The settlement itself is much smoke and mirrors. The CFPB separates $100 million from the amount as a penalty fine against Equifax and firmly stipulates that the firm cannot deduct the amount from its taxes. But that is the only tax specification on the settlement amount in the court order.
That leaves $600 million that Equifax could conceivably load on to the taxpaying public. Of that only $300 million is set aside for consumer reimbursement. The remaining $300 million covers a variety of expenses including the bureaucracy set up to coordinate the settlement and the 20 years of legal requirements Equifax must heed to properly observe the requirements.
Information: You can see how your government creates settlements in the court order available at https://tinyurl.com/y4sdhyj7