Experian, one of the nation’s three preeminent credit reporting agencies, has been fined $3 million by the Consumer Financial Protection Bureau.
What was the infraction that warranted this $3 mil slap on the wrist? According to the CFPB, Experian deceived consumers when it told them that the version of credit scores they could purchase was the same one that lenders used to make credit and financial decisions.
This version of credit scoring proprietary to Experian’s, called PLUS Score, had several unique characteristics. Experian used their credit scoring model by syncing it to data in consumer credit files, resulting in the PLUS Score that they then offered and sold directly to the public.
But despite the fact that PLUS Score was not a credit scoring platform used by lenders to make credit decisions, Experian advertised it as such, and therefore were in violation of the law, according to the CFPB.
In fact, Experian’s PLUS Score is for educational purposes only, with no practical use if consumers need 100% accurate information on what creditors are using to make lending decisions.
“Experian deceived consumers over how the credit scores it marketed and sold were used by lenders,” CFPB Director Richard Cordray said. “Consumers deserve and should expect honest and accurate information about their credit scores, which are central to their financial lives.”
However, even though Experian advertised their PLUS Score as the version that creditors were judging, there were often “significant” differences in credit scores and reporting data between PLUS and other scoring models, according to the CFPB.
“As a result, Experian’s credit scores in these instances presented an inaccurate picture of how lenders assessed consumer creditworthiness,” the CFPB stated.
With their ruling against Experian, the CFPB also reiterated that while lenders and, banks and businesses widely use a consumer’s credit score when making decisions about granting loans and credit, there is no one universal credit score that they all use. Instead, PLUS Score should have been represented as a scoring model that had value to consumers for educational purposes only, allowing them to monitor and improve their scores.
However, Experian claims that they did nothing illegal, although they chose to settle and accepted the fine instead of prolonging a legal battle that would be bad for business. In an official statement, Experian responded, “While we do not believe our practices violated the law and did not admit to any of the allegations, in the interest of moving our business forward and staying focused on delivering an exceptional product and service experience to our clients and consumers, Experian has accepted the consent order.”
Experian (EXPN) is one of the “Big Three” credit-reporting agencies that collect and calculate credit score for millions of Americans, along with TransUnion (TRU) and Equifax (EFX.)
In their public statement about Experian’s infraction and the subsequent fine, the CFPB stated that “in addition to the credit scores that are actually used by lenders, several companies have developed so-called ‘educational credit scores,’ which lenders rarely, if ever, use.”
According to the CFPB, Experian must pay a $3 million civil money penalty to the Bureau’s Civil Penalty Fund for violating the Dodd-Frank Act by “falsely representing that the credit scores it marketed and provided to consumers were the same scores lenders use to make credit decisions.”
The CFPB also ruled that Experian was in violation of the Fair Credit Reporting Act, which requires credit reporting agencies to make a credit report available to consumers for free once every twelve months.
This isn’t the only time that Experian has gotten in trouble with the CFPB in recent years. In fact, Experian was also fined more than $20 million in January along with TransUnion and Equifax for misrepresenting the cost and value of their credit scoring models to consumers between 2012 and 2014. Reportedly, consumers that wanted to access their free credit report had to watch Experian advertisements first, a violation of the Fair Credit Reporting Act that prohibits those marketing tactics.
As part of the agreement, the three agencies were ordered to pay $17.6 million in restitution to customers and another $5.5 million in fines to the CFPB.
As part of CFPB’s reprimand, Experian is also required to “truthfully represent the usefulness of credit scores it sells” going forward, and “must inform consumers about the nature of the scores it sells to consumers.”
The credit scoring company also “must develop and implement a plan to make sure its advertising practices relating to credit scores and on Internet web pages that consumers access through AnnualCreditReport.com comply with federal consumer laws and the terms of the CFPB’s consent order,” according to the CFPB.
Experian has complied fully, stating that “Experian will execute all actions directed by the CFPB; except for limited changes, our current marketing practices are already compliant with the order.”
The important lesson for consumers is that they should be wary of advertising and paying for their credit score. While different credit scores and reports like PLUS Score and others may help them monitor credit activity and get a broad sense of their credit worthiness, there is no one credit scoring model used and accepted by all, and each lender or creditor may be looking at a different version.
Consumers can get one free copy of their credit report from Experian, TransUnion, and Equifax every 12 months at AnnualCreditReport.com.
If you have more questions about credit reporting or improving your score, contact Blue Water Credit any time!