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New rules crack down on 'free' credit reports
Sacramento Bee


March 31, 2010

It's no joke: Starting Friday, after April Fools' Day, those "free" credit reports you hear about just might truly be so.

To crack down on misleading advertising, the Federal Trade Commission is requiring companies offering "free credit reports" to state clearly that there's only one authorized site to get them:

The new rules, a mostly overlooked piece of last year's massive credit card reform bill, are aimed at deceptive radio, TV and online ads that hook consumers with catchy jingles and promises of "free" credit reports. In too many cases, the FTC says, consumers were duped into monthly fees for credit monitoring and other services that many didn't want or didn't know they were signing up for.

"People all the time ask, 'Why am I being charged when all I wanted was a free credit report?' " said John Ulzheimer, consumer education president for, a personal finance Web site.

In many cases, "It's either because they didn't read the fine print or didn't cancel or opt out of the trial membership (for fee-based credit services)," said Ulzheimer.

Starting this week, Web sites must prominently state that a free credit report is available from www.annualcreditreport .com or by phone at (877) 322-8228. The same requirement for TV and radio ads goes into effect Sept. 1.

Under a 2003 federal law, consumers are entitled to receive one free credit report annually from each of the three credit reporting bureaus -- Experian, Equifax and TransUnion. The reports are a record of your credit history, detailing balances and payments on loans, bills and other debt.

To get a credit score, you have to pay a fee, typically $15 and up.

One company affected by the FTC's new rules is, whose popular pitchman is a guitar-strumming young rocker whose credit woes are chronicled in a series of funny TV ads that have attracted avid followers on YouTube and Facebook.

In 2005 and 2007, Experian, which owns, was fined a combined $1.2 million and ordered to pay refunds to consumers who requested a free credit report but wound up paying for credit-monitoring services they didn't want.

Even though the ads said a person's credit card would not be charged during the free trial period, the FTC said they failed to adequately explain that consumers automatically would be charged a $79.95 annual membership with automatic rebilling, unless they canceled within 30 days.

Later, the FTC posted its own YouTube parodies of's ads, reminding consumers that there's only one authorized site for free credit reports:

The parodies and fines evidently didn't go far enough. To ensure consumers aren't misled by deceptive advertising of credit reports, Congress included the FTC's requirements in the 2009 Credit CARD Act.

Changes were also required of the site. "To alleviate consumer confusion," there's now a ban on any advertising popping up from Experian, Equifax or TransUnion until after a person has completed their request for a free credit report, said FTC attorney Tiffany George.

In the past, she noted, consumers on the Web site were "bombarded by lots of confusing offers," or were shuttled off the main page to paid sites offering fee-based services.

Also, consumers can't be required to set up an account or agree to terms and conditions to receive a free annual credit report. "It's all designed to remove any barriers to consumers receiving their free reports," said George. "It's supposed to be an unfettered right."

Those in the credit scoring industry say the new FTC rules are good for everybody.

"It's cracking down on some of the bad behavior by some of the players," said Craig Watts, public affairs director for FICO.

Despite the troubled economy, consumer credit scores have stayed "remarkably stable" during the recession, said Watts. Nationally, the median FICO score still hovers around 712, based on the last four years of consumer data from credit bureau Equifax.

FICO scores, which range from 350 to 850, are used by lenders to determine creditworthiness and to set interest rates on car loans, mortgages, credit cards and other consumer debt.

Some consumers, Watts noted, have seen their scores go higher during this recession because they are paying down credit card balances, refraining from opening new credit card accounts or postponing purchases that require getting a loan, such as a new car. "Because they're retrenching, it's helping their scores," said Watts.

At the same time, a different set of consumers' scores are dropping lower because unemployment and other disruptions have forced them to live off their credit cards and become delinquent on other payments.

Those highs and lows have offset each other, keeping the U.S. median FICO score relatively untouched during the recession.

Consumers should also know that FICO has tweaked some of the factors used in compiling a typical credit score. Under the new scoring system made available to lenders last fall, small incidents -- an isolated delinquent account for a utility bill that you forgot to pay or a debt collection for an original balance less than $100 -- are ignored. They're no longer significant hits to your creditworthiness.

However, more weight is now being given to things like how much debt you've piled onto your credit card. If you've notched up your "utilization rate" by maxing out credit cards, your credit score will more likely be hurt, said Watts.



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