Experian Fined for Misrepresenting Credit Scores

News

It wasn’t exactly bait and switch, maybe
unlawful substitution is closer to the mark. 
Whatever, Experian, the credit reporting company, has been handing consumers
a line about their credit scoring system and CFPB caught them.

The Consumer Financial Protection Bureau
(CFPB) announced on Thursday Experian and its subsidiaries have agreed to a $3
million civil penalty
for deceiving consumers about its own proprietary brand
of credit scores.  The company claimed
the credit scores it marketed and provided to consumers were used by lenders to
make credit decision.  CFPB says, in fact,
lenders do not use these scores. 

Credit scores are numerical summaries designed to predict consumer payment behavior
in using credit. CFPB states that no single credit score or credit scoring
model is used by every lender. In addition to the credit scores that are
actually used by lenders and several companies have their own “educational” scoring
models which, CFPB says are merely intended to inform consumers.

Experian, based in Costa Mesa, California,
developed its own proprietary credit scoring model, branded as the “PLUS Score”
against which it applied information in its consumer credit files to generate
such an educational score.  These were
marketed, in violation of the Dodd-Frank Wall Street Reform and Consumer
Protection Act, as the same scores as those Experian provides to lenders.  CFPB maintains that lenders do not use the
PLUS scores and in some instances there were significant differences between those
scores and the various credit scores lenders actually use.  “As a result,” CFPB says, “Experian’s credit scores in these instances
presented an inaccurate picture of how lenders assessed consumer
creditworthiness.’ 

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.” 

Experian is one of the nation’s three largest credit reporting
agencies.   It advertises, sells, offers,
and provides credit scores, credit reports, credit monitoring, and other
related products to consumers and third parties. In addition to violations of
Dodd-Frank the consent order maintains Experian violated the Fair Credit
Reporting Act, which requires a credit reporting company to provide a free
credit report once every twelve months and to operate a central source –
AnnualCreditReport.com – where consumers can obtain their report. Until March
2014, consumers getting an Experian report on the site had to view Experian
advertisements before they got to the report. This violates the Fair Credit
Reporting Act prohibition of such advertising tactics. 

In addition to the civil penalty CFPB ordered Experian to
truthfully represent how its credit scores are used and to put in place an
effective compliance management system to make sure its advertising practices
on AnnualCreditReport.com comply with federal consumer laws and the terms of
the CFPB’s consent order. 

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