Equifax, Trans Union will pay fines, refunds to settle charges they deceptively marketed free credit scores and credit reports

Equifax and Trans Union were smacked by federal regulators on the first business day of the year, as the credit bureau giants will pay millions to settle allegations they deceptively sold and advertised free credit reports and credit score products.

The Consumer Financial Protection Bureau says the two giant credit bureaus used the so-called “negative option” to trick consumers into costly monthly subscriptions for credit score and report products that were advertised as free or costing $1.

The bureau also said Equifax forced consumers to view ads when they tried to get their free credit reports at AnnualCreditReport.com, a violation of the Fair Credit Reporting Act.

And the CFPB says both firms misled consumers about the value of credit scores they marketed.  The proprietary scores sold to consumers are not widely used to make credit decisions, the CFPB said.

TransUnion and Equifax must pay a total of more than $17.6 million in restitution to consumers, and fines totaling $5.5 million to the CFPB.

“TransUnion and Equifax deceived consumers about the usefulness of the credit scores they marketed, and lured consumers into expensive recurring payments with false promises,” said CFPB Director Richard Cordray. “Credit scores are central to a consumer’s financial life and people deserve honest and accurate information about them.”

In a statement, Equifax said it had long-ago changed the practices investigated by the CFPB.

“The CFPB’s investigation into these matters has been ongoing for nearly three years, and Equifax implemented changes addressing the CFPB’s concerns shortly after the investigation began,” said Ines Gutzmer, Equifax Senior Vice President, Corporate Communications & Brand, in an email. “While 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.”

Trans Union, in its statement to me, also said it broke no law.

“We continue to believe that our consumer marketing has been clear and has complied with the law and other government guidance. Our trial credit monitoring service has given consumers low-cost access to their credit report and credit score and allowed them to conveniently cancel monitoring services at any time online or by phone,” the statement read. “However, 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. ”

The consent orders require both firms to obtain “express informed consent” before enrolling a consumer in any credit-related product with a negative option feature, and provide “a simple, easy-to-understand way to cancel the purchase of any credit-related product.”

In one order, the CFPB cited Equifax ads that promised “Banks and lenders will most likely check your credit – make sure you see what they see.” But the scores Equifax provided were “educational” scores, not the FICO score used by most lenders, the CFPB said. While disclaimers indicated this, they were not “clear and conspicuous,” the CFPB said.

The order also says Equifax forced consumers at AnnualCreditReport.com to click through two web pages worth of ads to see their credit report, a tactic expressly forbidden by federal law.

The Trans Union order says that firm assured consumers that scores it was selling would be used by “lenders” or “landlords.”  Instead, the firm sold its VantageScore product.

“In many cases, there were significant and meaningful differences between the VantageScore credit scores marketed and sold to consumers and the variety of credit scores sold to lenders,” the order says.

Consumers groups cheered the news.

“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.”

UPDATED 1/4/17 at 1 p.m. ET – Barrett Burns, president & CEO of VantageScore Solutions, issued a statement saying their score has educational value.

“As the CFPB has pointed out, no one credit score model can singularly represent the consumer lending marketplace. In addition to all three VantageScore models and the dozens of FICO models that are in use today, many lenders may rely upon their own proprietary models to grant or manage credit. When a score is provided to a consumer, he or she should be clearly informed that a credit score is only one of many factors considered by lenders and that the particular score being provided is unlikely to be the one actually used to make any given credit decision,” Burns said. “Although 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.”

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