Experian settles free credit report charges

Credit bureau Experian has settled charges that it misled consumers with the lure of a free credit report and instead enrolled them in costly credit monitoring services, the Federal Trade Commission said Tuesday.

Under the terms of the settlement, Experian admitted no wrongdoing but agreed to give refunds to some consumers and surrender $950,000 in what the FTC called “ill-gotten gains.” In addition, Experian, one of the nation's three major credit bureaus, has changed the way it advertises credit monitoring services at ConsumerInfo.com and FreeCreditReport.com.

A free annual peek at a credit report, mandated by Congress in 2003, will finally be available to all U.S. consumers on Sept. 1. On that day, consumers on the East Coast will get their first crack at the only site which offers the federally-mandated free credit reports, AnnualCreditReport.com. The free reports have been phased in across the country from west to east; West Coast residents have been eligible to get them since last December.

What Experian did, according to the FTC, was to use the lure of a free credit report to trick consumers into paying for costly subscriptions. Television and radio advertising campaigns drove consumers to the ConsumerInfo.com and FreeCreditReport.com Web sites, but when consumers filled out the forms for what they thought was a free peek at their credit histories, they were automatically enrolled in paid credit monitoring services, the FTC alleged. Consumers who didn’t cancel within 30 days were charged a full year’s subscription of the services at $79.95.

“They charged consumers for services they may not have intended to buy,” said Lydia Parnes, director of the FTC’s Bureau of Consumer Protection. “Consumers paid the price for ordering free credit reports from FreeCreditReport.com.”

Experian's Peg Smith said the company was happy to reach a settlement and "put this behind us." She said the company had worked with the FTC since 2002 to offer additional disclosures on its site, but said consumers were always shown detailed information about the products they were buying before their credit cards were charged.

"Experian does regret any confusion we caused consumers," she said.

Experian purchased ConsumerInfo.com in May 2002, and was first contacted with complaints by the FTC in July of that year. By September of the following year, she said, the firm had made all the changes requested by the FTC. 

"We thought we had put the issue behind us then," she said. The firm wasn't contacted by the FTC with additional complaints until December 2004, just as the AnnualCreditReport.com site was launched, Smith said. Experian has now made the additional changes requested by the FTC, including a notice atop its sites indicating that they are not affiliated with the government program.

Smith added that disclosures must be "balanced against marketing opportunities."

Until recently, the text atop ConsumerInfo.com said “Free! Free! Free!  Get your FREE Credit Report Online in Seconds!!!”  When consumers clicked on “Free report,” they were sent to a sign-up page. At the bottom of that page, in small print, was the message that a credit card was required and a fee will be charged.

On Tuesday, a warning about the possible membership fee was featured prominently at the top of the Web site. “When you order your free report here, you will begin your free trial membership in CreditCheck Monitoring,” the message read. “If you don't cancel your membership within the 30 day trial period, you will be billed $9.95 for each month that you continue your membership."

The settlement covers ConsumerInfo’s marketing actions from November 2000 to September 2003. Consumers who signed up for the service during that time may be entitled to a refund, the FTC's Parnes said.

In September 2003, The Electronic Privacy Information Center filed a complaint with the FTC about ConsumerInfo's sales tactics. The firm then altered its disclosures to be more clear about the automatic enrollment in subscription services. Parnes said consumers who signed up with ConsumerInfo after September 2003 are not entitled to a refund because of those changes; still, the settlement requires even more explicit disclosures.

Experian will contact consumers entitled to a refund, but consumers can also call an FTC hotline at (202) 326-3457 to see if they are eligible, or visit the Web site http://www.ftc.gov/freereports.

Consumers who signed up for the service after September 2003 can request refunds using the company's normal refund policy, Smith said.

FTC warns of misleading sites
The FTC also warned Tuesday that many other Web sites are trying to take advantage of confusion around the new free annual credit reports mandated by Congress.  The FTC has sent 130 letters to other Web site operators warning them that they are being watched for possible unfair practices and that "attempts to deceive consumers are illegal,” Parnes said.

For months, consumer groups had been complaining about Web sites that use names similar to the federal government's site, AnnualCreditReport.com, to trick consumers. Pam Dixon, an advocate at the World Privacy Forum, issued a report last February saying there were nearly 150 sites promising free credit reports but actually selling products to consumers instead. She said then that the landscape for consumers was so confusing that they were better off not using the Internet to obtain their free credit report, and suggested they use telephone services instead. (Consumers can request their report from the federal government's service by calling 1-877-322-8228.)

Many of these so-called imposter sites, with names that include typographical errors and other slight variations, were purchased and operated by independent operators. But the credit bureaus were also interested in getting traffic meant for the government site. In May, MSNBC.com reported on a study which showed that Experian and rival credit bureau Trans Union had purchased a series of Web sites with names similar to AnnualCreditReport.com, and the sites were being used to sell credit report services.

Dixon said she was pleased by the steps the FTC took Tuesday.

“We're thrilled. This is exactly what needed to happen,” she said. “With the letters going out to the imposter sites, it will really clean it up. This will really protect consumers.”

The FTC also said it will also begin an education campaign aimed at clearing up confusion surrounding the AnnualCreditReport.com site. The agency will publish materials and purchase ads on major search engines aimed at steering consumers to the correct site, Parnes said.

“Let me be clear. There is only one official source for free annual credit reports, and that’s AnnualCreditReport.com,” she said.