Experian Fined Over Alleged Deception in Credit-Score Marketing

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 [e-mail]

(END) Dow Jones Newswires

March 23, 2017 15:53 ET (19:53 GMT)

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