Experian Fined $3 Million for Selling Misleading Credit Scores

CFPB

That credit score information you just bought might not be what you think it is.

A recent action taken by the Consumer Finance Protection Bureau (CFPB) alleges Experian marketed the credit scores it sold to its customers as the same credit scores lenders see when evaluating applicants.

“Experian deceived consumers over how the credit scores it marketed and sold were used by lenders,” said CFPB Director Richard Cordray in a statement.

Experian – one of the “big three” credit reporting agencies – will now have to pay a $3 million fine.

The charges against Experian

The CFPB, established under The Dodd-Frank Wall Street Reform and Consumer Protection Act, ensures financial institutions uphold the regulations outlined in this act.

According to the CFPB, Experian and its subsidiaries have been:

  • Selling credit scores under the pretense that they were the same credit scores lenders used in determining creditworthiness, which violates the Consumer Financial Protection Act of 2010.
  • Showing consumers ads for its products before taking them to their free credit report through AnnualCreditReport.com, which violates the Fair Credit Reporting Act (FCRA).

Violating the Consumer Financial Protection Act

The credit score Experian sold was a model of its own called the “PLUS Score.” According to the CFPB, this is an educational score – a score that is used to help consumers estimate where they stand. Lenders rarely use educational scores when deciding to approve or deny an application for credit.

The main issue with consumers only seeing an educational score is that the credit score lenders see may be drastically different.

For consumers, that could result in issues such as applying for credit under the impression that their score is better than it is. And that could lead to potentially paying more in interest or even outright denial of their application.

Violating the Fair Credit Reporting Act

The Dodd-Frank Act mandates that credit reporting agencies provide a free annual credit report once per year through AnnualCreditReport.com. According to the CFPB, consumers had to view Experian advertisements before they could see their report.

Given all the confusion on what’s free and what’s not when it comes to credit scores and credit reports, this could have led many consumers to click on an ad that would redirect them to Experian’s website, where they might end up paying for something they were entitled to have at no cost.

The CFPB’s action to rectify these errors

As a result of these violations, the CFPB charged Experian a penalty of $3 million, which will go to the CFPB’s Civil Penalty Fund.

The CFPB now requires Experian to be transparent about the credit scores it sells. It also requires them to create a compliance management system to ensure violations like these don’t happen again.

In his statement, Director Cordray explained why actions like this are important. “Consumers deserve and should expect honest and accurate information about their credit scores, which are central to their financial lives.”

While the CFPB does its part to ensure consumers get accurate information, consumers have to be vigilant as well.

If you believe you’ve been a victim of deceptive practices by a financial institution, you can submit a complaint to the CFPB. Consumer complaints are essential in helping the CFPB uncover potential issues like Experian’s.

What you see vs. what lenders see

In the end, we all have many credit scores. And these scores all differ because:

  • There are three different major credit reporting bureaus.
  • There are two major types of credit scores.
  • Lenders use different scoring models based on what they’re selling.

Educational credit scores can get a bad rap since they’re not the same scores that lenders use. But these scores can be helpful to you.

When you check your score, focus more on the range (i.e., “excellent,” “good,” “fair”) than on the precise number. That way you can see where you stand without fixating on a number that can change.

Your range can differ based on who’s checking your score, especially if you’re on the cusp of two different ranges. Still, what you’re looking for is a basic idea of where your score stands, not an exact match.

It’s important to remember you don’t have to pay for this. There are plenty of places you can check your educational credit score for free.

The score you see may not look at all like what lenders see, but that’s okay. When you see your educational score, focus on getting to the highest range rather than obsessing over the perfect number. Do that, and you should be in good shape to make sound decisions when you need to apply for and use credit.

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1 Includes AutoPay discount. Important Disclosures for SoFi.

SoFi Disclosures

  1. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Finance Lender Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)
  2. Personal Loans: Fixed rates from 5.49% APR to 14.24% APR (with AutoPay). Variable rates from 5.29% APR to 11.44% APR (with AutoPay). SoFi rate ranges are current as of December 1, 2017 and are subject to change without notice. Not all rates and amounts available in all states. See Personal Loan eligibility details. Not all applicants qualify for the lowest rate. If approved for a loan, to qualify for the lowest rate, you must have a responsible financial history and meet other conditions. Your actual rate will be within the range of rates listed above and will depend on a variety of factors, including evaluation of your credit worthiness, years of professional experience, income and other factors. Interest rates on variable rate loans are capped at 14.95%. Lowest variable rate of 5.29% APR assumes current 1-month LIBOR rate of 1.34% plus 4.20% margin minus 0.25% AutoPay discount. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account.

2 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Personal Loan Rate Disclosure: Fixed interest rates range from 5.99% – 16.24% (5.99% – 16.24% APR) based on applicable terms and presence of a co-applicant. Lowest rates shown are for eligible applicants, require a 3-year repayment term, and include our Loyalty and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
  2. Loyalty Discount: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower has a qualifying account in existence with us at the time the borrower has submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, student loans or other personal loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI and VT. This discount will be reflected in the interest rate and Annual Percentage Rate (APR) disclosed in the Truth-In-Lending Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan, and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  3. Automatic Payment Benefit: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their Citizens Bank Personal Loan during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account two or more times within any 12-month period, the borrower will no longer be eligible for this discount.
7.39% - 29.99%$1,000 - $50,000Visit Upstart
5.29% - 14.24%1$5,000 - $100,000Visit SoFi
8.00% - 25.00%$5,000 - $35,000Visit Payoff
5.99% - 16.24%2$5,000 - $50,000Visit Citizens
5.99% - 35.89%$1,000 - $40,000Visit LendingClub
5.25% - 14.24%$2,000 - $50,000Visit Earnest
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