A major credit bureau and its subsidiaries will pay a civil penalty of $3 million, accurately represent how the credit scores it markets to consumers are used, and put in place an effective compliance management system in a settlement with the Consumer Financial Protection Bureau (CFPB or Bureau).

What happened

One of the nation's largest credit reporting agencies claimed the credit scores it marketed to consumers were used by lenders to make credit decisions, the Bureau alleged, even though lenders did not use the scores for decision making.

The company developed its own proprietary credit scoring model, dubbed "PLUS Score," which it applied to the data in consumer credit files to generate a credit score it offered directly to consumers. According to the CFPB, the PLUS Score is an "educational" credit score intended to inform consumers about the state of their credit and not actually used by lenders when making credit decisions.

The CFPB alleges that these facts didn't stop the credit bureau from falsely stating to consumers from at least 2012 through 2014 that PLUS Scores were used by lenders, even when there were "significant differences" between the PLUS Scores that it provided to consumers and the credit scores used by lenders.

For example, the CFPB claims that one ad represented that "Lenders review your credit information and so should you. Check your credit score to know what to expect—including what factors may be affecting your credit." Another ad stated: "See the same type of information lenders see when assessing your credit …"

The company did include a disclosure in its ads for the PLUS Score: "Calculated on the PLUS Score model, your. . . Credit Score indicates your relative credit risk for educational purposes and is not the same score used by lenders." But the disclosure "was not always conspicuous and, in many instances, far removed from the claims the disclosure was intended to modify," according to the CFPB consent order.

These actions allegedly ran afoul of the Dodd-Frank Wall Street Reform and Consumer Protection Act's prohibition on unfair, deceptive, or abusive acts or practices, the CFPB asserted, and consumers were allegedly left with "an inaccurate picture" of how lenders assessed their creditworthiness. The CFPB notes that lenders use a variety of credit scores, which can vary by score provider, scoring model, and target industry, with no single credit score or scoring model as the prototype for the marketplace.

The CFPB further alleges that the credit reporting agency violated the Fair Credit Reporting Act (FCRA) by requiring consumers to view company ads before they could access a free credit report. The statute mandates that a free credit report be provided to consumers once every 12 months and prohibits the use of advertising as part of the right to obtain consumer reports.

To settle the charges, the company must pay a $3 million civil penalty to the Bureau and change its practices. The agency will accurately represent the usefulness of credit scores sold to consumers and establish an effective compliance management system to ensure that its advertising practices comply with both federal consumer laws and the terms of the CFPB's consent order.

To read the consent order, click here.

Why it matters

The company allegedly "deceived consumers over how the credit scores it marketed and sold were used by lenders," CFPB Director Richard Cordray said in a statement about the action. "Consumers deserve and should expect honest and accurate information about their credit scores, which are central to their financial lives." This action by the Bureau covers the last of the "Big Three" consumer reporting agencies, following consent orders in January, 2017 with the other two agencies that allegedly duped consumers about the usefulness and actual cost of credit scores, requiring a total payment of $23.5 million in restitution and civil penalties.