TransUnion, Equifax fined by U.S. watchdog for misleading consumers about credit scores

Two of the largest credit monitoring firms have been fined by a major U.S. financial watchdog for misleading consumers about the value of the services they peddle.

Firms must pay $23 million US in fines and reimbursements

Credit monitoring companies such as Equifax and TransUnion offer consumers a peek at their credit histories. (iStock)

Two of the largest credit monitoring firms have been fined by a major U.S. financial watchdog for misleading consumers about the value of the services they provide.

Equifax and TransUnion — based in Atlanta and Chicago, respectively — have been fined a total of $5.5 million US for luring unwitting consumers "into costly recurring payments for credit-related products with false promises," the Consumer Financial Protection Bureau said in a release. In addition to the fine, both companies have been ordered to reimburse consumers for $17.6 million they shouldn't have been charged for services.

Credit scores

Along with others in the industry, both companies make money by selling consumers information about their credit histories, which is used to determine the rates and loan amounts they will be offered by lenders in the future. They both also sell services aimed at keeping their private information safe and secure, also with an aim of making customers more credit-worthy.

One of their major services is to give customers their credit score, which is a number tabulated to summarize their overall credit-worthiness. A higher score means the person is a solid bet to repay a loan. A lower score means they are less so — and by extension might need to take steps to improve their credit. One of the services the companies offer to help do that is known as credit monitoring, which the companies sell for as much as $16 per month.

The reporting agencies base the scores on a consumer's history of paying off debt, how much debt they carry and other factors.

But the CFPB said the scores sold to consumers by TransUnion and Equifax were not typically used by lenders to make credit decisions.

Instead, lenders evaluate potential borrowers by using an array of credit scores, which vary by score provider and scoring model. Different credit "scores" are not necessarily correlated to each other, a CFPB report from 2012 found, which means consumers could be misled about their actual credit-worthiness if they paid attention solely to the information being given to them from one company.

"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."

The agency says TransUnion has been misleading consumers about their actual credit scores since at least 2011. Equifax, meanwhile, was doing the same between 2011 up to 2014. 

TransUnion said in a statement it continues to believe that its advertising has been clear and has complied with laws.

"Our trial credit monitoring service has given consumers low-cost access to their credit report and credit score and allowed them to conveniently cancel monitoring services at any time online or by phone," the company said. "However, we are committed to making improvements to our consumer experience, and over the past several months we have worked co-operatively with the CFPB to be the industry leader in designing the enhanced, voluntary marketing disclosures that go beyond the current legal and regulatory requirements to which we agreed as part of this settlement."

TransUnion noted that the company's practices in Canada are not included in the CFPB action. 

"Consumer solutions offered by TransUnion Canada remain in compliance with all applicable local laws," TransUnion said. "As always, we remain committed to providing consumers with access to information about their credit that can help them make informed financial decisions."

Equifax noted that the CFPB's investigation continued for nearly three years, and said it made changes to address the agency's concerns soon after the investigation began. "While Equifax does not believe it has violated any laws and has not admitted any liability, Equifax determined it was in its best interest to resolve the matter with the CFPB," the company's statement said.

With files from The Associated Press