Experian Fined Over Alleged Deception in Credit-Score Marketing
March 23 2017 - 4:08PM
Dow Jones News
By Yuka Hayashi
WASHINGTON -- The Consumer Financial Protection Bureau on
Thursday fined Experian PLC $3 million, alleging that the leading
credit-reporting firm misrepresented the credit scores it marketed
to consumers.
In the latest example of its intensifying policing of the
credit-reporting industry, the federal regulator said Experian
claimed the credit scores it sold to consumers were the same ones
lenders used to make credit decisions. In reality, these scores
were generated for the purpose of being sold directly to consumers,
the CFPB said.
In its complaint against Experian, the CFPB said in some
instances, there were significant differences between the credit
scores the company provided to consumers and the credit scores
lenders actually used. "As a result, Experian's credit scores in
these instances presented an inaccurate picture of how lenders
assessed consumer creditworthiness," the agency said.
In addition to the fine, the CFPB ordered Experian to
"truthfully represent" to customers how its credit scores are used
and to put in place an effective compliance management system.
The company confirmed it accepted the consent order, without
admitting to any of the agency's allegations. "The consent order
addresses past products and marketing disclosure and does not
reflect current marketing practices," said Experian spokesman Gerry
Tschopp.
Dublin-based Experian is the largest credit-reporting firm in
the U.S. and the world, with its North American headquarters in
Costa Mesa, Calif.
Credit-reporting firms are required by law to provide one free
credit report to consumers every year. Consumers typically end up
seeing their credit scores or reports when applying for a loan, and
some banks now offer the score free as part of a bank account.
The CFPB in recent months has been increasing its scrutiny of
credit-reporting companies, whose practices could have significant
impact on consumers' ability to obtain credit to purchase homes,
autos and other items -- as well as the cost of that credit.
In January, two of Experian's smaller rivals, Equifax Inc. and
TransUnion, agreed to collectively pay more than $23 million over
similar claims by the CFPB that they deceptively marketed and sold
credit scores to consumers. Earlier this month, CFPB Director
Richard Cordray urged the industry to improve the quality and
accuracy of credit reports and to upgrade systems to resolve
consumer complaints.
The CFPB has also begun exploring ways to allow alternative
data, such as rent and utility payments, to be used to calculate
credit scores, a step that could allow millions of consumers who
have no or insufficient credit histories to gain access to
credit.
Companies are responding to the heightened pressure from
regulators. The top three firms in the industry -- Experian,
Equifax and TransUnion -- have decided to remove certain negative
information, including tax liens and civil judgments, from credit
reports to help improve scores for numerous consumers.
The CFPB said in its consent order that in addition to the
credit scores that are actually used by lenders, several companies
have developed what are known as "educational credit scores" that
are offered to consumers but are rarely, if ever, used by
lenders.
Experian marketed its version of educational scores, called the
PLUS Score, to consumers from at least 2012 through 2014, without
conspicuously disclosing that they weren't the same scores used by
lenders.
The CFPB also alleged Experian violated a legal requirement to
provide free credit reports once a year to consumers and make them
available through a central source, AnnualCreditReport.com. Until
March 2014, the bureau said, customers seeking credit reports were
directed to Experian's advertisements before they received their
reports, a marketing method prohibited by the Fair Credit Reporting
Act.
Write to Yuka Hayashi at yuka.hayashi@wsj.com
(END) Dow Jones Newswires
March 23, 2017 15:53 ET (19:53 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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