Settlement shows confusion surrounding credit scores

In the latest skirmish in a protracted battle, federal regulators have settled charges with two major credit bureaus for marketing credit scores and related products in misleading ways.

The credit bureaus, Equifax and TransUnion, agreed this month to pay a combined $23 million to settle accusations by the Consumer Financial Protection Bureau that they deceived consumers into buying credit scores of questionable value over a period of several years.

The federal consumer watchdog agency said the credit bureaus had also made "false promises" to lure customers into costly recurring payments for credit-related products. Customers signed up for what they thought was a free trial, but were actually enrolled in a service that charged monthly fees unless they canceled during the trial period. Terms were not "clearly and conspicuously" stated, the agency said.

Hundreds of thousands of consumers were affected, according to the federal bureau.

The action is the latest that government regulators have taken over the years to try to force the major credit bureaus to be upfront in their marketing of credit scores, credit reports and related services, like credit monitoring.

Credit scores are three-digit numbers used by lenders to decide how likely a consumer is to repay a loan, based on the person's financial record. The scores serve as a capsule summary of information in a loan applicant's credit report, which is compiled by a credit bureau and provided to lenders, and includes information about how many credit cards and loans potential borrowers have, and whether they make their payments on time.

TransUnion and Equifax agreed to pay $17.6 million in restitution to customers and fines totaling $5.5 million.

TransUnion said it believes its marketing has complied with the law. However, the company said it had worked with the federal consumer bureau to design new marketing disclosures, as part of the settlement.

Equifax said it had made changes to address the federal bureau's concerns shortly after the agency's investigation began, nearly three years ago and that it doesn't believe it's broken any laws.

The companies, the consumer bureau said, violated federal laws by promoting credit scores sold to consumers as the same scores that lenders would use to make credit decisions. "In fact," the federal bureau said, "the scores sold by TransUnion and Equifax were not typically used by lenders to make those decisions."

The scores TransUnion marketed to consumers are based on a VantageScore model that is "highly unlikely" to be used by lenders or commercial users, the bureau said in its consent order.

In Equifax's case, the credit scores sold to consumers were "educational" scores, based on its own scoring model.

The settlements highlight the reality that each consumer has multiple credit scores, rather than a single, static score. The exact score used to make a decision on a given loan depends on the credit bureau providing it, the scoring model used to create it, the specific industry it is designed for and the timing of its preparation.

Different scoring formulas, for instance, are used to evaluate applicants for home loans, credit cards and car loans.

Ann Carrns writes for the New York Times.