TransUnion, Equifax, ordered to pay $23 million for credit score deception

TransUnion and Equifax engaged in deceptive marketing of credit scores and products, federal regulators said Tuesday.
TransUnion and Equifax engaged in deceptive marketing of credit scores and products, federal regulators said Tuesday.

TransUnion and Equifax, two of the nation’s three largest credit reporting agencies, have been ordered to pay $23.1  million for deceiving consumers about the usefulness and actual cost of credit scores they sold to consumers.

Consumers were led to believe the scores they sold to consumers were the same scores lenders typically use to make credit decisions, which is the FICO score. However,  the scores the companies marketed  were alternative scores based on other models, the Consumer Financial Protection Bureau said Tuesday.

 

In addition, the companies falsely claimed their credit scores were free, or in the case of TransUnion, only cost “$1.” The truth was that consumers received a free trial of seven or 30 days, after which they were automatically enrolled in a subscription program, the CFPB said.

Instead, in a practice known as “negative option” marketing, unless the consumers canceled during the trial period, they were charged a recurring fee, usually $16 or more a month.

The CFPB ordered TransUnion, based in Chicago,  and Equifax, headquartered in Atlanta, to truthfully represent the value of the credit scores they provide and the cost of obtaining those scores and other services.

Between them, TransUnion and Equifax must pay more than $17.6 million in restitution to consumers and $5.5 million in fines to the CFPB.

The companies collect credit information about consumers and provide reports and scores to businesses. Through their subsidiaries, they sell credit scores, credit reports and credit monitoring services directly to consumers.

The scores that TransUnion sells to consumers are based on a model from VantageScore Solutions, LLC, which are not typically used for credit decisions.

Equifax sold scores to consumers based on its proprietary model, the Equifax Credit Score, an educational score also not typically used to make credit decisions.

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, the CFPB said.

Equifax also violated the Fair Credit Reporting Act, which requires a credit reporting agency to provide a free credit report once every 12 months and to operate a central source, AnnualCreditReport.com, where consumers can get their report. Until January 2014, consumers getting their report through Equifax first had to view Equifax advertisements, a violation of the Act.

“We applaud the Consumer Financial Protection Bureau for taking strong and vigorous actions against TransUnion and Equifax to protect the interests of American consumers,” said National Consumer Law Center staff attorney Chi Chi Wu. “In addition to obtaining tens of millions of dollars in relief for consumers, this consent order will protect consumers from being ripped off in the future over deceptive credit monitoring products and sales practices.”

The full text of the CFPB’s Consent Order against Equifax is here: http://files.consumerfinance.gov/f/documents/201701_cfpb_Equifax-consent-order.pdf 

The full text of the CFPB’s Consent Order against TransUnion is here: http://files.consumerfinance.gov/f/documents/201701_cfpb_Transunion-consent-order.pdf 

More information about credit scores can be found here: http://www.consumerfinance.gov/about-us/blog/what-you-need-know-understanding-why-offers-your-credit-score-are-not-all-same/  

 

 

 

Should you say yes to a new credit card? New cards double during holidays

Should you add one more to your stack of credit cards?
Should you add one more to your stack of credit cards?

Whether you’re shopping online or in a store, you’ve probably been asked whether you want to open a credit card specific to that retailer to qualify for a deal or discount.

Should you? Experts say it might not be the smartest move because it can hurt your credit score.

The holiday shopping season is prime time for shoppers to open yet another credit card, even though their wallets are already bulging with a colorful collection of plastic.

In fact, TransUnion, one of the nation’s three major credit bureaus, said this week that for big box discount retailers and online retailers, the number of new accounts often doubles during December. Jewelry stores experience new card openings close to that level, and for department stores, it’s 1.5 times the level of the non-holiday season.

The number of consumers with “private label” credit cards jumped from 123.7 million in December 2014 to 124.8 million in December 2015. As of the third quarter of this year, the number of consumers with retail cards grew to 135.2 million and will likely “grown substantially” during this year’s holiday season, TransUnion says.

More cards and more shopping results in, you guessed it, more delinquent payments.

Nidhi Verma, senior director of research and consulting at TransUnion says, “Typically, retail card delinquency rates are highest during the fourth quarter of every year, as some consumers may face challenges after shopping or opening new cards.”

Some consumers forget they opened a new card and miss the first payment, Verma said, cautioning consumers to not overextend themselves during the holiday shopping season.

The experts at MyFico.com, the consumer division of FICO, which issues the credit scores that are the global standard for credit risk, say that consumers should only apply for credit they need and  plan to use.

Saving 10 percent on a purchase doesn’t qualify as needing credit, MyFico advises. Often, the initial 10 percent savings is offset by high interest rates. Opening unnecessary accounts can also backfire when you need to make a big purchase and find that your score has dropped and that you no longer qualify for the best rates.

“There is no “golden number” of charge cards, but opening cards just to gain a small savings is usually a bad idea,” MyFico says.

For more information about credit scores from MyFico, click here.