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FTC issues new rules for those that offer (NOT) free credit reports

Firms must disclose prominently they're not really free

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The Federal Trade Commission announced Feb. 24 new rules to help consumers avoid being misled by companies that shout "FREE CREDIT REPORT," but whisper "actually, this could cost you."

Those offering 'free credit reports' that aren't actually free will have to make that fact clear under new FTC rules
'FREE' CREDIT REPORT OFFERS
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What's happened: A proliferation of companies offer "free credit reports" that are not really free unless you read the fine print and jump through hoops. The Federal Trade Commission has issued rules to force them to reveal that fact prominently.

Why it's important: Consumers should check credit reports regularly to guard their credit. Since 2004, each of the major credit bureaus -- Equifax, Experian and TransUnion -- has been required to give consumers one free credit report each year upon request, with no strings attached. But other companies have leaped into the market, and offered "free" credit reports that required payments.

What consumers should do: Regularly examine your credit report. But look first to the free, government-approved site, or by calling (877) 322-8228. If you want to purchase credit monitoring services that come with a free credit report, make sure you understand what you're buying.

The FTC's new guidelines require the companies' websites, telemarketing calls, and print and television ads to disclose more prominently that the services they are pitching differ from the government-approved website AnnualCreditReport.com, which offers free credit reports with no strings attached.

The FTC was required to adopt the new rules as part of the Credit CARD Act of 2009, the bulk of which took effect Feb. 22, 2010. The move is the latest step in the government's increased control over the advertising practices of companies that offer credit reports. The changes could further help encourage consumers to examine the accuracy of their credit reports, which are used by credit card issuers, mortgage lenders, employers and others to make decisions.

Thousands of consumers have complained they have been duped by offers for "free credit reports." The reports are typically offered as part of a free trial of pay services that monitor changes in people's credit scores. But consumers often fail to spot the fine print announcing the charges, or forget to cancel their free trials before being charged.

Consumer groups cheer
Consumer groups on Tuesday applauded the FTC's move.

"Increased education is never a bad thing," said Alison Southwick, spokeswoman for the Better Business Bureau, which has received more than 11,000 complaints on the topic in recent years. "A lot of these companies, they do say some of the terms and conditions in fine print, but increased disclosure never hurts anyone."

Perhaps the best known such service is FreeCreditReport.com, a subsidiary of Experian, one of the three major credit reporting bureaus. It has run snappy television ads featuring pirate waiters and other down-on-their-luck characters who sing that they wish they had checked their credit scores so they would have been alerted to identity thieves.

In 2005, the FTC filed suit against the site, alleging deceptive marketing practices. It later collected more than $1.2 million in settlements.

In a statement Tuesday, Experian said it was reviewing the rules "to determine the appropriate actions to support our business." It added: "We remain committed to clearly and conspicuously disclosing to consumers that the free report we offer is not the free annual credit file disclosure provided by federal law."

Plenty of other companies also pitch so-called "free" credit reports. Type "credit report" into any Internet search engine, and in addition to the credit bureaus and the government-approved site, you'll find a multitude of sites that tout "free credit reports" and warn against identity theft. In small print toward the bottom of their home pages, they make clear that they're offering trial subscriptions to services that cost $12 to $30 a month.

Changes in effect April 1
Starting April 1, the FTC's new rules require such sites to give disclaimers much more prominent play: they must be at the top of the page, in big fonts and distinct colors, with a working Internet hyperlink to the website AnnualCreditReport.com, which must be called "the ONLY authorized source under federal law."

In asking for comments on the proposed rules, the FTC received more than 1,000 responses, mostly from consumers who said the offers were confusing. One respondent from Pennsylvania wrote: "Free credit check reports should be available through a site that absolutely prohibits any chance of punching the wrong button and subscribing to a service not wanted!"

FTC spokesman Frank Dorman said the agency is planning no further regulations on the topic, but that it would continue listening to consumers.

"We'll monitor it and find out if it's effective or not," he said. "We might tweak it later down the road."

See related: U.S. seeks clearer path to the (really) free credit reports, Guide to the Credit CARD Act of 2009

Published: February 23, 2010


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