TransUnion and Equifax Ordered by Consumer Financial Protection Bureau to Pay for Deceiving Consumers

The companies misstated the cost and usefulness of their products and services

TransUnion and Equifax Ordered by Consumer Financial Protection Bureau to Pay for Deceiving Consumers
Image: Pixabay
January 04, 2017

Credit reporting companies Equifax and TransUnion have been ordered by the Consumer Financial Protection Bureau (CFPB) to pay millions of dollars in restitution and fines to consumers and the agency.

The companies were accused of deceiving consumers about the usefulness and the actual cost of the credit scores they sell. They also lured people into making expensive monthly payments for products related to their credit by using false promises.

The CFPB ordered the companies to be truthful about the value of the credit scores they sell to consumers and about the real cost of those scores and other services. TransUnion and Equifax must, between them, pay more than $17.6 million back to consumers in compensation and $5.5 million in fines 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."

Equifax and TransUnion are two of the three biggest credit reporting companies in the U.S. They collect information about consumers' credit, including payment history, debt balance, maximum credit limits, the names and addresses of current creditors, and other parts of their credit relationships. The companies use this information to put together credit reports and scores that are then provided to business. They also market, sell, or provide products related to credit directly to consumers through their subsidiaries. Examples of these products include credit scores, credit reports, and credit monitoring.

Credit scores are summaries in the form of numbers that are designed to predict how and when a person will pay when using credit. Many lenders and other companies use these scores when deciding whether or not to extend credit to a particular person. No one credit score or credit score model is used by every single lender. Lenders use many credit scores, which vary according to the model used to calculate the score and the company that provides it.

The scores sold by TransUnion are calculated based on a model from VantageScore Solutions. Although the company has marketed VantageScores to lenders and other companies, they are not usually used in making decisions about credit. The scores sold by Equifax were based on its proprietary model, the Equifax Credit Score—an "educational" credit score also not usually used to make credit decisions by lenders.

TransUnion—since at least July 2011—and Equifax—between July 2011 and March 2014—broke the Dodd-Frank Wall Street Reform and Consumer Financial Protection Act by doing the following:

  • Deceiving people about the value of their credit scores. In their advertising, the two companies deceived consumers into believing that the companies' credit scores were the same ones that lenders generally use in making decisions about credit. In reality, lenders did not usually use the scores sold by TransUnion and Equifax to make such decisions.
  • Deceiving people into enrolling in subscription programs. The companies also made false claims in their advertising that their credit scores and products related to credit were free or—in TransUnion's case—cost only "$1." In reality, people who signed up with the companies got a free trial of either seven or 30 days, after which time they were enrolled automatically in a subscription program. Unless the consumer cancelled their subscription during the trial period, the company charged them a recurring fee, usually an amount of $16 or more per month. This method of billing—which is known as a "negative option"—was not disclosed to consumers clearly and conspicuously.

In addition, Equifax broke the Fair Credit Reporting Act. This law requires credit reporting agencies to give consumers a free credit report once every year when they request one. The companies are also requested to operate a central source where consumers can go to get their report, which is known as Until January 2014, anyone who got their report through Equifax had to view company advertisements first. This is a violation of the Fair Credit Reporting Act, which prohibits advertising like this until after consumers have gotten their report.

The Dodd-Frank Act authorizes the CFPB to act against any institution that is carrying out unfair, deceptive, or abusive acts or practices or that is breaking federal consumer financial laws in any other way. Under the CFPB's consent orders, TransUnion and Equifax have to do the following:

  • Pay more than $17.6 million in total compensation to consumers who were harmed. TransUnion has to provide more than $13.9 million to compensate consumers, and Equifax must pay nearly $3.8 million. The two companies also have to send notification letters about this compensation to consumers who were affected.
  • Be truthful about the usefulness of the credit scores they sell. The companies have to inform people clearly about the nature of the scores they sell.
  • Get consumers' express and informed consent. Before TransUnion and Equifax can enroll a consumer in any product related to credit with a negative option feature, they have to get the consumer's authorization.
  • Prove consumers with an easy way to cancel products and services. The companies have to give consumers a simple, easy-to-understand way to cancel the purchase of any products related to credit as well as to stop billing and collecting recurring payments when consumers cancel their subscriptions.
  • Pay $5.5 million in total penalties. TransUnion has to pay $3 million to the CFPB's civil penalty fund, and Equifax has to pay $2.5 million.