If The Credit Agencies Mislead Consumers, Do We Need A New Score?

The Consumer Financial Protection Bureau has made a blockbuster announcement: It has charged Equifax and TransUnion, two of the three major credit reporting agencies, with violations of the Dodd-Frank and Fair Credit Reporting Acts and ordered them to pay over $23 million in fines and consumer restitution.

The CFPB claims the two companies sold customers fake credit scores and lured people into buying expensive credit monitoring services they didn’t intend to purchase. They lied to consumers who were only trying to improve their financial health.

That $1 Credit Score You Bought Wasn’t Exactly Your Credit Score

According to a report in The Atlantic, Equifax and TransUnion each offered consumers a chance to see their credit scores, which are crucial to obtaining credit and directly affect the interest rate the consumer is offered. The scores range from 300 to 850 and are assigned based on the individual’s current debt level, access to unused credit balances, payment history and other factors.

Under the Fair Credit Reporting Act, you are entitled to a free copy of your credit report from each of the three major credit reporting agencies (Equifax, TransUnion and Experian) every 12 months. Unfortunately, your credit score is not included in that, simply because the FCRA did not require it. Instead, Equifax and TransUnion offered to sell it — sometimes for $1, other times as part of a free trial.

According to the CFPB, those free and low-cost credit scores were a scam. What they sold was an “educational” credit score — not the kind lenders actually use when making credit decisions.

That ’30-Day Free Trial’ Meant Automatic Subscription Enrollment

The CFPB also accused Equifax and TransUnion of engaging in a deceptive advertising tactic by using an undisclosed “negative option.” In other words, consumers were given the impression they could get their credit report, credit score, and credit monitoring free for a week, or even a month. In reality, people were signed up for a subscription program that would start charging them $16 per month or more unless they canceled it before the trial period ended. This was not disclosed clearly and conspicuously, as required by law.

Equifax was also charged with a Fair Credit Reporting Act violation. The FCRA to requires them to provide an annual credit report for free — and forcing people to watch ads before they were given that report is not providing it for free.

“Credit scores are central to a consumer’s financial life and people deserve honest and accurate information about them,” says the CFPB’s director — and that’s especially true when people are just trying to be responsible. So what are we to do now?