April 8, 2011 at 8:00 AM ET
Confused about your credit score and where to get it? That's intentional, according to a new lawsuit filed in a California federal court.
Many consumers who think they are buying a peek at their credit scores are being defrauded, according to a lawsuit against credit bureau giant Experian. The case, which seeks class action status, claims that Experian is intentionally confusing customers, engaging in false advertising and not giving consumers what they pay for when they sign up for services at the firm's popular FreeCreditReport.com and FreeCreditScore.com Web sites.
"It's a classic consumer fraud case," said David Woodward, one of the lawyers who filed the case. "The law is designed to prohibit exactly this kind of egregious advertising practice. ... The defendant is profiting from deception."
Experian, through its ConsumerInfo brand, aggressively markets access to credit scores as a benefit of subscribing to its credit monitoring service. Knowing your credit score, ads suggest, is essential before borrowing money and could save consumers thousands of dollars.
The vast majority of lenders use a three-digit number called a FICO score to make lending decisions. Developed by Fair Isaac and Co., the FICO score takes data from credit reports maintained by the nation's three credit bureaus -- Equifax, Trans Union and Experian -- and boils it down into one three-digit number for each bureau report to provide a quick assessment of a consumer's creditworthiness. All consumers in the system have an Equifax FICO score, an Experian FICO score and a Trans Union FICO score.
The credit scores that Experian sells to consumers, however, are not the Experian FICO scores, the lawsuit contends. Instead, subscribers who sign up for a $14.95 per month service at FreeCreditReport.com get access to a similar three-digit number developed by Experian using its so-called PLUS Score model. While the value is meant to give consumers a sense of their creditworthiness, Plus Score ratings are not sold to lenders, and are not used in lending decisions, the lawsuit alleges.
It's unclear how much the Experian FICO score and the PLUS score can vary. But that is immaterial to Woodward, who says Experian intentionally blurs this distinction in its advertisements.
"It's simple. ConsumerInfo doesn't sell PLUS Scores to lenders," he said. "Fraud is inherent in the advertising."
Experian currently has 3.1 million credit monitoring subscribers through its ConsumerInfo group, which has also doled out 20 million credit reports, the company says.
An Experian spokeswoman said the firm would not comment on the accusations because they stem from ongoing litigation.
The plaintiff in the case is David Waring, a California consumer who signed up at FreeCreditReport.com and now says he was duped.
In one advertisement cited by the lawsuit, a notice on Experian site FreeCreditScore.com says, "Only One Number Matters! Your CREDIT SCORE." Later in the text, the site says that membership includes "credit score alerts," which allow consumers to "find out when your score changes. This could help you qualify for better interest rates."
Text on FreeCreditReport.com uses similar language: "Lenders use credit scores to help them determine the 'credit worthiness' of consumers applying for credit cards, lines of credit, or loans."
In each case, the sites suggest that consumers will receive access to the score lenders use when making credit decisions, and that's misleading, said attorney Woodward.
"The defendants represent that they are selling a credit score, a number to determine credit worthiness. But it's not that. It's a score based on an in-house model that lenders do not use," he said.
Experian sites do indicate in various places that the score they are selling is not a FICO score. Accessed this week, FreeCreditReport.com indicates towards the bottom of its home page that the "Experian Credit Score indicates your relative credit risk level for educational purposes and is not the score used by lenders."
But Woodward says Experian's disclosures are not "clear and conspicuous," and many consumers who view the marketing materials are left with the impression that they are buying a score used by lenders.
Experian's FreeCreditReport.com has been the target of many legal actions and accusations of deception, including several run-ins with the Federal Trade Commission. Accusing the firm of tricking consumers into paying for credit reports that they could obtain for free, the FTC last year forced Experian to add a link atop FreeCreditReport.com that sent consumers to AnnualCreditReport.com, the congressionally-mandated website where consumers can obtain their credit reports for free. In turn, Experian changed its business model for the site and began focusing on selling credit scores and credit monitoring services.
For years, credit experts (and this blog) have warned consumers that not all credit scores are created equal, and that many outlets selling credit scores aren't selling the real thing. In 2006, Fair Isaac sued the nation's three credit bureaus over the creation and sale of such alternative scores. In 2009, a jury ruled against Fair Isaac, in what became essentially a trademark violation case.
Still, consumers could buy their three FICO scores using a Fair Isaac Web site named MyFico.com -- until February 2009, when Experian stopped letting Fair Isaac sell Experian FICO scores at the site. That means today, there is no way for consumers to obtain this number, unless they receive it as part of a mandatory disclosure from a lender following a negative credit action.
Purchase of Experian's PLUS Score is a poor substitute, Woodward said. More important, the resulting marketing blitz for Experian's score has led to great consumer confusion, he said.
"Accurate credit scores are critically important to consumers, especially now, in a down economy," he said. "Consumers have a right to receive truthful advertising about them."