05 Jan TransUnion, Equifax Fined for Deceiving Consumers With Credit Scores/Products

The Consumer Financial Protection Bureau (“CFPB”) issued a press release on Tuesday that revealed it is fining TransUnion and Equifax more than $17 million in restitution to consumers, and fines totaling more than $5 million to the CFPB, for deceiving consumers in marketing credit scores and credit products.  TransUnion, which is based in Chicago, and Equifax out of Atlanta are two of the nation’s three largest credit reporting agencies.  The third credit reporting agency, Experian, based in Dublin, Ireland, was not involved in the investigation and was not issued a consent order like TransUnion and Equifax.

The Credit Reporting Business

TransUnion, Equifax and Experian collect credit information (like a borrower’s payment history, debt load, maximum credit limits, names and addresses of current creditors) on all financial transactions, such as loan payments, collections and delinquencies, and distill that information into a consumer credit score than lenders use to determine what terms to offer borrowers.  Through their subsidiaries, TransUnion Interactive and Equifax Consumer Services, the companies also market, sell, or provide credit-related products directly to consumers, such as credit scores, credit reports and credit monitoring.

The scores (called “VantageScores”) that TransUnion sells to consumers are based on a model from VantageScore Solutions, LLC, which scores are not typically used for credit decisions.  Similarly, scores Equifax sold to consumers were based on Equifax’s proprietary model, the Equifax Credit Score, which is an “educational” credit score not typically used by lenders to make credit decisions.

CFPB Allegations

According to the CFPB press release, Equifax, TransUnion, and their subsidiaries misstated the actual cost and usefulness of credit scores they sold to consumers, and lured consumers into making costly, recurring payments for credit-related products by suggesting they were low cost.

Specifically, the CFPB stated that TransUnion, since at least July 2011, and Equifax, between July 2011 and March 2014, violated the Dodd-Frank Wall Street Reform and Consumer Financial Protection Act by:

• Deceiving consumers about the value of the credit scores they sold, by falsely representing the credit scores were the same scores lenders typically use to make credit decisions when 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, by falsely claiming 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 thirty days, after which time they were automatically enrolled in a subscription program and 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.

The CFPB also stated that Equifax violated the Fair Credit Reporting Act, which requires a credit reporting agency to provide a free credit report once every 12 months, without first requiring consumers to view Equifax advertisements.

Credit Reporting Agencies to Pay Restitution, Fines and Change Business Practices

These improper practices resulted in the two companies paying a total of more than $17.6 million in restitution to consumers, and fines totaling $5.5 million to the CFPB. TransUnion is responsible for more than $13.9 million of the restitution total, and $3 million of the penalty going to the CFPB, with Equifax paying the remaining $3.8 million in restitution and $2.5 million in fines.  Both were also ordered to (1) truthfully represent the value of the credit scores they provide and the cost of obtaining those credit scores and other services; (2) obtain the express informed consent of consumers before enrolling them in any credit-related product with a negative option feature; and (3) provide an easy way to cancel products and services, and stop billing and collecting payments for any recurring charge when a consumer cancels.

CFPB Director Richard Cordray criticized the reporting agencies for employing deceptive practices to entice consumers, stating that “[c]redit scores are central to a consumer’s financial life and people deserve honest and accurate information about them.”

Equifax provided in a statement that “[w]hile Equifax does not believe it has violated any laws and has not admitted any liability, Equifax determined it was in its best interest to resolve the matter with the CFPB.  Equifax remains committed to providing products and services that educate and alert consumers about their credit and identity and ensuring transparency and clarity about the value of those products and services.” According to the statement, the CFPB’s investigation into these matters has been ongoing for nearly three years.

TransUnion provided in a statement that “we are committed to making improvements to our consumer experience, and over the past several months we have worked cooperatively with the CFPB to be the industry leader in designing the enhanced, voluntary marketing disclosures that go beyond the current legal and regulatory requirements to which we agreed as part of this settlement.”

Barrett Burns, president and CEO of VantageScore Solutions (owned by TransUnion) stated that “[a]lthough VantageScore Solutions does not sell credit scores, we work hard to ensure that consumers who receive a VantageScore credit score will also be able to review educational content about our model and the credit scoring process in general.”