Two credit reporting bureaus TransUnion and Equifax will pay fines of $23.1 million to settle a case with the Consumer Financial Protection Bureau that said the two companies misled consumers, causing the consumer to pay for credit scores that could have been far different from scores that lenders use.
Credit Card companies, mortgage lenders as well as others usually use the FICO score that is calculated by Fair Isaac Corp. However, the CFPB says that Equifax and TransUnion sold consumers their own scores from in-house and implied improperly that those same scores were the ones checked by lenders.
The CFPB said as well that the two companies had promised cheap or free credit scores as a way to entice consumers into purchasing costly monthly subscriptions for credit monitoring.
Both companies must pay fines of $5.5 million as well as restitution to the consumer of $17.6 million as a settlement with the CFPB.
Richard Cordray the CFPB Director said that credit scores were central to the financial life of a consumer and people deserve to have accurate and honest information about them and that Equifax and TransUnion deceived its customers about the credit scores usefulness that was marketed by them.
Equifax, based in Atlanta was targeted by the CFPB for its practices between 2011 and 2014 and TransUnion, based in Chicago from 2011 through the enforcement action on Tuesday.
No action was taken by the CFPB against the other major credit bureau in the country Experian based in Costa Mesa, California.
A spokesperson for TransUnion said an agreement to settle was reached by the company with CFPB but it believes nevertheless that the consumer marketing by the company was clear and that it complied with the law.
A spokesperson with Equifax said it had agreed to change certain practices after an investigation was started by the CFPB over three years ago, and despite this settlement, it does not think it violated the law.
Each of the companies did not acknowledge any wrongdoing. That was part of the settlement reached with the CFPB.
The issue at hand is the difference between credit scores the credit bureaus calculated using their in house formulas and scores that were calculated using formulas Fair Isaac Corp had developed.
FICO scores come from calculations made by Fair Isaac using credit bureaus financial information. Credit bureaus must pay Fair Isaac to run the FICO scores, but all the bureaus have their own models to make credit scores.
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