Jim Flynn: CFPB cracks down on credit-reporting agencies’ deceptive practices

The credit reporting industry took another economic and public relations hit this month because of administrative enforcement actions by the Consumer Financial Protection Bureau.

Two of the three national credit reporting agencies, Equifax and TransUnion, have agreed to pay restitution and fines resulting from deceptive marketing activities relating to credit scores. Equifax will pay $6.3 million and TransUnion will pay $16.9 million. Altogether, this comes to $23.2 million – enough to get the credit reporting industry’s attention.

This time around, the third national credit reporting agency, Experian, dodged the bullet, perhaps because the Federal Trade Commission, before the CFPB came into existence in 2010, had slapped it with an enforcement action resulting from deceptive advertising involving credit reports.

The basis for the CFPB’s actions against Equifax and TransUnion was the selling of “credit scores” in a manner causing purchasers to believe the credit scores they were receiving were the same scores used by lenders when making credit decisions. That, in fact, was false.

Lenders by and large use credit scores from Fair Isaac Corp., commonly known as FICO scores. The scores Equifax and TransUnion were selling were derived from other credit-scoring models, rarely used by creditors. Also, Equifax and TransUnion were misrepresenting the cost of obtaining a credit score. Consumers were led to believe there would be no cost or a $1 cost. In fact, they were immediately signed up for programs generating monthly fees (up to $200 a year) in the absence of a prompt cancellation during a short initial test drive.

The CFPB’s director, Richard Cordray (who, thanks to the Republican-controlled White House and Congress, may soon be looking for a new job), summed up the CFPB’s actions: “TransUnion and Equifax deceived consumers about the usefulness of the credit scores they marketed, and lured consumers into expensive recurring payments with false promises.”

The CFPB found support for its enforcement actions in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which contains broad prohibitions against deceptive advertising of consumer products and services. It concluded Equifax had violated the Fair Credit Reporting Act (around since 1970) by forcing people ordering an annual free credit report at annualcreditreport.com to view Equifax advertising before they could get their report.

The CFPB’s enforcement actions concluded with “consent orders.” These are something in the nature of a civil plea bargain, where the respondent does not admit wrongdoing but does agree to pay damages and fines, promises to clean up its act and is threatened with greater punishment if there is a subsequent violation. If you want all the gory details, the consent orders can be found at the CFPB’s website, consumerfinance.gov.

The CFPB and the Federal Trade Commission are not the only cops on the beat watching over the consumer reporting industry. In a 2015 settlement with 31 state attorneys general, the three national credit reporting agencies agreed to improve how they fixed errors in credit reports and handled disputes about credit report information.

Credit reports are not used only by lenders. They are also used by insurance companies, landlords and employers. It’s important, therefore, to take advantage of your right to a once-a-year free report from each of the three national credit reporting agencies to be sure your report does not contain errors. The free reports are available at annualcredit report.com. Beware of impostor sites.

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