Earlier this month, the Consumer Financial Protection Bureau (CFPB) took action against two credit reporting agencies and their subsidiaries. TransUnion and Equifax were found to have deceived consumers about the cost and usefulness of the credit scores they sold. In total, the regulator is making them pay approximately $23 million in penalties and restitution to consumers. Consumers should pay attention, because this news highlights the importance of understanding how credit and credit scoring work.
CFPB Penalizes TransUnion and Equifax
The Consumer Financial Protection Bureau determined that TransUnion and Equifax violated the Dodd-Frank Act. TransUnion had been doing so since at least July 2011. Equifax had been in violation between July of 2011 and March of 2014.
Here's what they were doing wrong:
- Deceiving Consumers about the Value of the Credit Scores They Sold
Officials at the CFPB found that both credit agencies were falsely representing the credit scores they sold. In their advertising, they made it seem like the scores they provided to consumers were the same ones lenders use to make credit decisions. TransUnion typically sells VantageScores, while Equifax had been selling their in-house "Equifax Credit Score." Neither of those is typically used by lenders and finance companies when making credit decisions.
- Deceiving Consumers into Enrolling in Subscription Programs
In their advertising, both credit bureaus falsely claimed their credit scores and products were free or only cost $1. In reality, the agencies were automatically enrolling consumers into a subscription program that charged recurring fees after the free trial was up. Unless consumers cancelled during the trial period, they were charged a recurring fee that usually topped $16 per month. The CFPB said this billing structure was not clearly stated and therefore they lured consumers into expensive recurring payments with false promises.
In addition to the fines and restitution to affected consumers, Equifax and TransUnion have been ordered to clean up their marketing language. Both have to "truthfully represent" the nature of the credit scores they sell, obtain consent before enrolling a consumer in a subscription program where fees kick in after free trials, and provide an easy way to cancel products and services.
Takeaways and Credit Advice
Credit scores are a big part of your financial life, yet the world of credit and credit scoring can be confusing. In light of the action taken against these bureaus by the CFPB, here is some credit advice.
- You Have Many Different Credit Scores
Many consumers aren't aware of the fact that they have many different credit scores. Several companies have developed credit scoring models over the years, and no single credit score is used by every lender. The most popular credit scoring model is the FICO score. This is the one that is most often used by lenders to make credit decisions.
- It is Possible to Get Your Credit Reports and Scores for Free
By law, every consumer is entitled to a complimentary copy of their credit report every 12 months from each of the three major credit agencies. You can access these at the authorized website, annualcreditreport.com. Also, while the credit bureaus charge consumers to access their credit scores, there are ways to get yours for free. Many banks and credit card providers give customers access to their credit scores for free. There are also many third-party websites like Credit Karma that provide them. While they may not be the ones used by lenders making credit decisions, they can still be helpful to see.
- No Service Can Change Your Credit for the Better
The subscriptions the credit bureaus provide monitor and analyze a consumer's credit. These monitoring services can be helpful, but you need to understand they are not going to improve your credit. The only way you can do that is to understand how credit scoring works and, with dedication and hard work, take steps to improve your situation.
If you are in the process of improving your credit, an auto loan can help. It can be a great credit builder if you make all of your payments on time.
Drivers Lane can help you find auto financing by connecting you to a dealership in your area. The dealerships in our network specialize in helping people dealing with imperfect credit. You may even be able to purchase your vehicle with little or no money down.
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