CFPB penalizes credit reporting agencies

TransUnion and Equifax, Inc. have been ordered to pay a total of more than $17.6 million in restitution to consumers, along with fines totaling $5.5 million to the CFPB.

The Consumer Financial Protection Bureau has ordered TransUnion and Equifax, Inc. to pay a total of more than $17.6 million in restitution to consumers, along with fines totaling $5.5 million to the CFPB. The Bureau says it is holding them accountable for deceiving consumers about the usefulness and actual cost of credit scores they sold to consumers, and luring them into recurring payments. The TransUnion consent order can be found here. The Equifax consent order can be found here.

TransUnion and Equifax are two of the three main credit reporting agencies in the country. They collect credit information to generate credit reports and scores that are provided to businesses, who use the numerical summaries in determining whether to extend credit to consumers. The companies also market, sell, or provide credit-related products directly to consumers, such as proprietary credit scores, credit reports, and credit monitoring.

The CFPB alleges that both companies violated the Dodd-Frank Act by deceiving customers about the value of the credit scores they sold. TransUnion and Equifax falsely represented that the proprietary credit scores they each marketed and provided to consumers were the same scores lenders typically use to make credit decisions. In fact, they are not. The CFPB also alleges that TransUnion and Equifax falsely claimed that their credit scores and credit-related products were free or nearly so. In reality, consumers who signed up received a free trial of seven or 30 days, after which they were automatically enrolled in a subscription program. Unless they canceled during the trial period, consumers were charged a recurring fee, usually $16 or more per month. This billing structure, known as a “negative option,” was not clearly and conspicuously disclosed to consumers.

The Bureau’s consent order with TransUnion requires the agency to pay almost $14 million to affected customers. The consent order with Equifax requires payment of $3.8 million. The companies also must send notification letters about the restitution to affected consumers. In the future, the companies are required to truthfully represent the usefulness of credit scores they sell, obtain the express informed consent of consumers before enrolling them in programs, and provide an easy way to cancel products and services. In addition, the reporting agencies must pay $5.5 million in total penalties directly 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,” CFPB Director Richard Cordray stated. “Credit scores are central to a consumer’s financial life and people deserve honest and accurate information about them.”

Fredrikson & Byron Law