Experian agrees to $3M penalty for deceptive credit score marketing practices

By Katalina M. Bianco, J.D.

Experian Holdings, Inc., one of the nation’s largest credit reporting agencies, has agreed to pay a $3 million civil penalty to settle allegations brought by the Consumer Financial Protection Bureau that Experian deceived consumers about the use of the credit scores they purchased. Experian represented that the "educational" credit scores it sold to consumers were used by lenders to make credit decisions when, in fact, lenders did not use the educational scores, according to the bureau's consent order. The CFPB also charged Experian with violating the Fair Credit Reporting Act by placing advertisements on web pages that consumers accessed when obtaining their free annual credit reports. Experian did not admit any wrongdoing.

Educational credit scores. According to the CFPB, several companies have developed "educational credit scores," which lenders rarely, if ever, use. Experian developed its own proprietary credit scoring model, referred to as the "PLUS Score," which it applied to information in consumer credit files to generate a credit score it sold directly to consumers.

The CFPB alleged that Experian marketed the PLUS Scores to consumers by representing that they were the same scores lenders use to make credit decisions. However, lenders did not use the PLUS scores, and in some instances, there were significant differences between the PLUS Scores and the various credit scores lenders actually use, presenting an inaccurate picture of how lenders view a consumer’s creditworthiness.

The consent order requires that Experian truthfully inform consumers about the nature of the scores it sells to consumers and implement a marketing compliance program.

"Experian deceived consumers over how the credit scores it marketed and sold were used by lenders," 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."

"Free" credit reports. The CFPB also claimed Experian violated the FCRA, which requires a credit reporting company to provide a free credit report once every 12 months. Until March 2014, consumers requesting their free annual report through Experian had to view Experian advertisements before they received their report. The FCRA prohibits these advertising tactics.

Cordray remarks. In prepared remarks before the National Community Reinvestment Coalition on March 29, Cordray noted that the CFPB is "pressing" banks, credit unions, and credit reporting agencies to make their reporting systems more accurate. Fair credit reporting appears to be on the bureau's 2017 agenda.

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