Equifax and TransUnion to Pay $23.1 Million for Deceiving Consumers

Last week the U.S. Consumer Financial Protection Bureau (CFPB) announced that Equifax and TransUnion, two of the Big Three credit-reporting agencies, have been deceiving

Subscription News: Equifax and TransUnion to Pay $23.1 Million for Deceiving Consumers

Source: Equifax and TransUnion

Last week the U.S. Consumer Financial Protection Bureau (CFPB) announced that Equifax and TransUnion, two of the Big Three credit-reporting agencies, have been deceiving consumers and will pay a combined total of $23.1 million as a result – $17.6 million in restitution to consumers and fines of $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.”

According to the CFPB, the agencies violated the Dodd-Frank Wall Street Reform and Consumer Financial Protection Act, TransUnion since at least July 2011 and Equifax between July 2011 and March 2014. The violations include:

  • Deceiving consumers about the value of the credit scores sold. The credit-reporting agencies said the credit scores they provided to consumers were the same as those typically used by lenders to make credit decisions, but that was not true.
  • Luring consumers into subscription programs with costly recurring payments. TransUnion and Equifax told consumers that credit scores and related products were free, or $1 (TransUnion), but consumers were actually signing up for an auto-enroll subscription program unless they canceled the service within the trial period which was seven to 30 days. The cost of the monthly payments was usually $16 ($192 annually), said CFPB. This “negative option” billing structure was not clearly or conspicuously disclosed to consumers.

Subscription News: Equifax and TransUnion to Pay $23.1 Million for Deceiving Consumers

Source: Equifax

In addition, Equifax violated the Fair Credit Reporting Act which requires that consumers can request a free credit report every 12 months through AnnualCreditReport.com. Until January 2014, consumers had to first watch Equifax ads before receiving their report, a violation of the Fair Credit Reporting Act.

According to the Washington Post, Equifax said they started making changes to their practices when the investigation began three years ago. The company has not admitted any liability. TransUnion also said it has complied with the law, but will compensate consumers that did not fully understand that they were signing up for a subscription.

The CFPB has imposed the following penalties and requirements of TransUnion and Equifax as a result of their violations:

  • TransUnion must pay more than $13.9 million in restitution to affected consumers. Equifax must pay nearly $3.8 million in restitution to affected consumers. The companies must also send notification letters to affected consumers.
  • TransUnion and Equifax must clearly inform consumers about the nature of the scores they are selling to consumers.
  • Before enrolling a consumer in a credit-related product, TransUnion and Equifax must obtain the consumer’s consent.
  • The credit agencies must also give consumers a transparent, easy-to-understand way to cancel the purchase of any credit-related products and stop billing and collecting payments for any recurring charge when a consumer cancels a product.
  • TransUnion must pay $3 million and Equifax must pay $2.5 million to CPFB’s civil penalty fund.

The full text of the consent orders stating violations and penalties can be viewed on the CFPB website:

CFPB Consent Order against Equifax

CFPB Consent Order against TransUnion

Subscription News: Equifax and TransUnion to Pay $23.1 Million for Deceiving Consumers

Source: TransUnion

TransUnion is based in Chicago, and Equifax is based in Atlanta. They represent two of the three major credit-reporting agencies. They collect credit information such as payment history, debt totals, credit limits, creditor information and more. They generate credit scores and reports which lenders and others use to determine a borrower’s likelihood of repayment. CFPB points out that neither score is used by lenders to actually determine credit worthiness. Instead, they are part of a larger formula lenders use to predict future consumer payment behavior.

The current online offers by Equifax and TransUnion appear more transparent, though further improvements could still be made. For example, the Equifax offer still contains fine print, and the TransUnion offer does not state what consumers are getting or that consumers can get a free credit report each year.

Subscription News: Equifax and TransUnion to Pay $23.1 Million for Deceiving Consumers

Source: Equifax

 

Subscription News: Equifax and TransUnion to Pay $23.1 Million for Deceiving Consumers

Source: TransUnion

Insider Take:

This type of behavior casts a shadow over all subscription and membership-based companies. The majority make their products, services, offers, and terms and conditions clear and obvious to prospective customers, but a few major violations like these can hurt consumers as well as the subscription industry. It is imperative that we are transparent in ALL of our communication with consumers. Five quick tips to avoid a similar situation:

  1. Make sure you understand all laws and regulations and that your company complies, no matter how much extra time or expense is required to do so.
  2. Provide clear, easy-to-understand and easily visible language in a legible size to prospective customers to ensure they understand what they are getting before they subscribe.
  3. Include clear explanations and answers on your company’s FAQ page to describe terms and conditions, costs, cancellation policies, etc.
  4. Regularly audit your processes and procedures to ensure compliance.
  5. Offer refunds to consumers who believe they’ve been misled.

For more information on how to ensure compliance, watch our on-demand webinar with Lisa B. Dubrow, Esq., “Know the Law: Auto-Renew Plans and Offers.”

 

 

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