Ed's Blog

This week, the Consumer Financial Protection Bureau nailed two of the so-called "big 3" credit bureaus --Trans Union and Equifax -- for deceptive marketing of their over-priced, under-performing credit monitoring subscription products.  Combined fines and  consumer restitution total $23 million. I predict that the CFPB will also bring a case against the remaining bureau, Experian, and that it will pay much more, because Experian really has led the way in aggressively marketing these tawdry products. They don't prevent identity theft, nor do they always accurately disclose your credit score, at fees of up to $16.95/month or more. Yikes!

The CFPB has brought similar "add-on" product enforcement actions against many of the largest credit card banks, which sell similar products. The CFPB has returned nearly $2 billion to consumers for credit card add-on marketing, including $727 million in its case against Bank of America.

As we pointed out a few years ago, the credit bureaus have long gotten away with selling defective, error-ridden credit reports. For years, they ignored efforts of the Federal Trade Commission to improve their accuracy. To be fair, the CFPB, which began work in 2011, has been granted many more tools by Congress than the FTC has been given. The FTC, in 2005 and 2007, did modestly punish Experian for deceptively linking its marketing of subscription monitoring products to free credit reports available by law since passage of 2003 amendments to the federal Fair Credit Reporting Act.

But Experian, Equifax and Trans Union have all leveraged consumer concerns about low credit scores and/or identity theft to scare consumers into signing up for over-priced, underperforming subscription products. Their revenues from "direct-to-consumer" marketing have increased dramatically over the years, although the accuracy of their credit reports certainly does not appear to have improved.

As the CFPB points out in its release, Trans Union and Equifax violated the law by:

  • Deceiving consumers about the value of the credit scores they sold: In their advertising, TransUnion and Equifax falsely represented that the credit scores they marketed and provided to consumers were the same scores lenders typically use to make credit decisions. In fact, the scores sold by TransUnion and Equifax were not typically used by lenders to make those decisions.
  • Deceiving consumers into enrolling in subscription programs: In their advertising, TransUnion and Equifax falsely claimed that their credit scores and credit-related products were free or, in the case of TransUnion, cost only “$1.” In reality, consumers who signed up received a free trial of seven or 30 days, after which they were automatically enrolled in a subscription program. Unless they cancelled during the trial period, consumers were charged a recurring fee – usually $16 or more per month. This billing structure, known as a “negative option,” was not clearly and conspicuously disclosed to consumers. 

Note the first bullet's emphasis on the fact that many scores that the bureaus sell are "educational," that is, not the exact score lenders use. (The most common lender-used scores are sold by a company called FICO; pundits sometimes refer to educational scores as "FAKO" scores.) More from a CFPB blog on scores and how to improve yours. By the way, many credit card companies are offering their customers free scores (look on your online statement) that are more likely to be true lender scores than "educational" scores, which is yet another reason not to pay hundreds of dollars a year to a credit monitoring service.

How can you get your own free credit monitoring? You are entitled to a free report annually from each of the Big Three--stagger the requests; make one every 4 months. In seven states, take advantage of additional free reports by state law. Learn more.

As we often point out, a security freeze is the only way to protect your credit report from new account identity theft. Monitoring is an after-the-fact "warning." The security freeze is available in every state for a one-time fee of $5-10 per credit report; you pay a similar fee to temporarily unfreeze your report when you want to apply for credit. In most states the freeze is free for identity theft victims and seniors. In any case, $30 for freezing all three reports is a lot cheaper and a lot more effective than paying $16.95/month for limited benefits from monitoring products.

The CFPB, since 2012, has also taken over examination and supervision of the biggest credit bureaus. These deceptive marketing cases are important but expect more scrutiny of the accuracy of credit reports sold by the credit bureaus from CFPB going forward. After all, the Big Three credit bureaus act as gatekeepers to who gets a loan and how much they pay, as well as who gets an apartment or mortgage and even who gets a job. As CFPB director Richard Cordray often points out, credit reporting and debt collection are "dead-end markets." You cannot vote with your feet; you are stuck with your credit bureau, no matter how many mistakes it makes, no matter how long it ignores you.

The idea of the CFPB needs no defense, only more defenders.

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