CFPB hits Equifax, TransUnion with hefty fines for “deceiving” consumers

The Consumer Financial Protection Bureau (the government watchdog agency tasked with protecting consumers in the financial sector) came down on TransUnion and Equifax in Jan. 2016.

The two credit-reporting agencies will have to pay a total of nearly more than $20 million in restitution to consumers and fines to the CFPB. The crime? According to the CFPB, the agencies “misstated the cost and usefulness of the credit scores and products they sold” and “lured consumers into costly recurring payments.”

March 2017 update: The third major credit bureau (Experian) has also been fined $3 million dollars by the CFPB for similar transgressions (“deceptive” marketing of their proprietary credit scores and placing ads in their federally mandated free credit reports).

These violations, the CFBP says, took place between July 2011 and March 2014 for Equifax and since July 2011 by TransUnion.

What the CFPB says they did wrong

The credit bureaus are best known for assembling consumer credit data into credit reports, which can then be used by third parties, like FICO, to generate credit scores. If you’re monitoring your credit, chances are you’ve pulled your free annual credit reports from Equifax, TransUnion and the third major bureau, Experian.

What the CFPB is having an issue with are the additional products and services TransUnion and Equifax sell directly to consumers. These include credit monitoring, proprietary credit scores and credit reports. According to the CFPB the two bureaus made these products seem more important than they were and using that inflated importance to convince consumers to enroll in subscription programs.

Here’s a list of the bureaus’ missteps, according to the CFPB:

  • Exaggerating the importance of the scores they sold: Consumers are intensely interested in knowing their “credit scores,” because lenders use them to approve or deny credit applications. Thing is, there are many credit scores in the world. FICO is regarded as the most widely used.

    The CFPB is saying that TransUnion and Equifax didn’t make that quite clear enough when advertising the scores they were selling, namely the VantageScore (TransUnion) and the Equifax “educational” Credit Score. The former is offered to lenders, although it’s not widely used by them. The latter isn’t used by lenders at all. It’s also worth noting that consumers can get their VantageScores via free credit-scoring sites.

    In other words, says the CFPB, Equifax and TransUnion were selling scores consumers may not really need without clearly disclosing that lenders don’t really use them – or don’t use them that much.
  • Trapping consumers in subscription programs: Ever enrolled in a “free trial” for a product only to find yourself getting billed monthly for it? The CFPB says TransUnion and Equifax did essentially this by advertising “free” access to their scores, or advertising access for only “$1.” Those who signed up and didn’t deactivate by the end of the trial period, however, were automatically enrolled in a monthly subscription. The CFPB says that agencies didn’t make that clear enough.
  • Putting ads before free credit reports (Equifax only): The FCRA requires credit reporting agencies to provide consumers with a free credit report once every 12 months via a central source – Prior to 2014, consumers ordering their free Equifax report were first shown Equifax advertisements before they could see their free report.

The consequences

The CFPB has the broad ability, given to it by the Dodd-Frank Wall Street Reform Act, to penalize financial institutions it feels engage in “unfair” or “deceptive” practices.
In this case, TransUnion’s and Equifax’s penalty includes the following:

  • Fines: TransUnion has been ordered to pay $13.93 million in refunds to consumers and a $3 million civil fine. Equifax has been ordered to pay $3.8 million to affected consumers and a $2.5 million civil fine.
  • Policy/advertising changes: Both credit bureaus have been ordered to “truthfully” inform consumers about the scores they are selling, obtain consent (via a clear opt-in) for any subscription products, and provide an easy way for consumers to cancel subscriptions.

For their part, TransUnion and Equifax have made statements saying they’ve been working with the CFPB for some time now and, while they believe their disclosures to consumers were clear, they are agreeing to pay the fines and update their educational messaging.

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