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'Free' credit report sites switch to offering 'free' scores

Last-minute one-word switch lets them avoid new federal rules

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To skirt new federal rules regulating websites that advertise free credit reports, some companies that used to offer those reports have devised a new marketing approach.

FREE CREDIT REPORT OFFERS SWITCH AT LAST MINUTE,
SKIRTING NEW FEDERAL REGULATIONS
Offering "free credit reports" becomes a federally regulated act on Friday, requiring companies making those offers to prominently say their offers are not the ones mandated by federal law. As the deadline to change approaches, some of the companies are simply switching to offering "free credit scores" instead, avoiding regulation.
CreditReport.com 
Before After
CreditReport.com's website a week ago CreditReport.com's website on March 31, 2010
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TrueCredit.com
Before After
TrueCredit.com's website last week TrueCredit.com's website on Wednesday
Click to enlarge
CreditCards.com found the trend toward highlighting free credit scores by comparing the look of the top five paid "free credit report" sites (as listed on a search engine) on March 31, 2010, with how they appeared a week earlier. Two of the five (TrueCredit.com and CreditReport.com) had dropped "free report" language in favor of "free scores." Two others (Free3BureauCreditReport.com and FreeCreditReportsInstantly.com) were already emphasizing free scores. Perhaps the best known site, FreeCreditReport.com, switched to charging $1 for credit reports, which also allows it to avoid the disclosure regulation.

They no longer are advertising "Free Credit Report!" -- a pitch that drew complaints from thousands of consumers because the offers typically came with costly strings attached. Instead, some of the top sites are now offering "Free Credit Scores." And the best-known site, FreeCreditReport.com, says it's still in the business of supplying credit reports, but that they'll now cost $1 (that it will donate to charity).

The moves are an apparent attempt to avoid Federal Trade Commission rules governing the advertisement of free credit reports, which took effect April 2, 2010.

Those rules require that sites offering free credit reports prominently display -- in large fonts at the top of the page -- a notice directing consumers to a genuinely free, government-approved source of credit reports. That site, AnnualCreditReport.com, does not provide free credit scores.

Rules cover reports, not scores
The FTC says the new regulations cover only offers of free credit reports, not offers of free scores.  

"It's not at all covered by the rules," said Frank Dorman, an FTC spokesman. "It's a completely different offering." A credit report is a detailed record of an individual's history in handling credit; a credit score is a three-digit number generated by a mathematical formula analyzing the data within a credit report. Both are important to consumers because both are used by financial firms in deciding whether to lend money and at what rate.

The FTC might review the new offers if there's an express or implied offer of a free credit report. And it's possible the new approach could still run afoul of more general rules against deceptive advertising, the agency said.

Consumer groups had previously complained about the advertising, and the  Credit CARD Act of 2009 required the FTC to adopt rules to make consumers better informed.

The reports were typically offered as part of a free trial of pay services that monitor changes in people's credit scores. But consumers often failed to spot the fine print announcing the charges, or forgot to cancel their free trials before being charged.

TrueCredit.com parent TransUnion and CreditReport.com parent Mighty Net Inc. did not immediately respond to requests for comment. Experian, which owns FreeCreditReport.com, said in a statement in late March that it "has been, and will continue to be, in compliance with the FTC's rules regarding the marketing of free credit reports. 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, and plan to comply with the FTC's rules."  

FreeCreditReport.com, whose TV ads feature musical slackers lamenting their low credit scores, changed its tune on April 1: It removed the disclosure language from the website. Instead, it is now charging $1 for credit reports.

"Due to federally imposed restrictions, it is no longer feasible for us to provide you with a  free Experian credit report," the site now reads. "So for now we'll be charging you $1 for your report." They will donate the money to DonorsChoose.org, an online charity, it said.

Once secret, now sold everywhere
This week's move away from offering the controversial "free credit reports" reinforces a longer-term effort by the industry to sell the once-secret credit scores to consumers. Experts say consumers should examine their credit reports to ensure that they're accurate, since the reports affect the score that credit card issuers, prospective employers, landlords and others use to judge a person's credit history.

Last year, the three major credit reporting agencies -- Experian, TransUnion and Equifax -- successfully urged the FTC to allow advertisements on the government-approved free site so that they could sell credit scores. In the second quarter of 2009, according to TransUnion, 14 percent of consumers who viewed their credit reports on the government-approved site proceeded to buy their credit scores.

On television, the catchy jingles selling FreeCreditReport.com have largely disappeared. Its owner has created a parallel site, FreeCreditScore.com. So what's playing on TV? Ads featuring writer and comedian Ben Stein and squirrels on a park bench, advertising FreeScore.com.

Restrictions on TV and radio ads take effect Sept. 1, but only address advertising of "free credit reports," not scores.

Tiffany George, a lawyer in the FTC's division of privacy and identity protection, says the agency's authority under the CARD Act language extends only to the marketing of "free credit reports." However, the FTC could examine the legality of some of the websites -- especially since many of the domain names of these sites mention free reports.

"We'd have to look at nature of the ad itself to see if there's an implied claim they'd be getting a free credit report," she said.

'It's deception'
Linda Sherry, spokeswoman for San Francisco-based Consumer Action, said she was not surprised that companies were changing to avoid the regulation.

"It's deception. They're going around a rule, and we have a problem with that," she said. "There's always something they will find a loophole to do ... It's an art to write legislation properly."

She said the best advice for consumers is to pay attention to what companies are offering and to read the fine print of any deal.

See related: New rules issued for those offering 'free' credit reports, U.S. seeks clear path to (really) free credit reports, Free credit reports: How to get the actual free one, The rules behind getting a free credit report, Credit reports and credit scores, 10 things you must know about credit reports and credit scores

Updated: April 5, 2010


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