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What’s wrong with this ad? The free credit reports Experian advertises aren’t free; they’re a teaser for Experian’s credit monitoring service, Triple Advantage. When callers requested their “free” credit reports, they were asked for credit card information and assured it was necessary only to establish their accounts, but would not be charged…and then they were enrolled in Triple Advantage and their cards were charged $79.95.
Adding insult to injury, Experian again used the credit card information to renew accounts without notification or consent, a violation of federal law.
In 2003, the Electronic Privacy Information Center (EPIC) asked the Federal Trade Commission to investigate Experian. When the investigation was completed in 2005, the FTC had determined that Experian deceptively marketed their credit reports and credit monitoring service in radio, TV, email and internet ads.
The FTC ordered Experian to make refunds to customers signed up from 2000 to 2003. They also had to pay $950,000 (which the FTC referred to as “ill-gotten gains”) to pay for consumer education on how to obtain genuinely free credit reports from annualcreditreport.com.
Apparently, $950,000 is chump change to Experian. In 2007 the FTC fined them an additional $300,000 for violating the previous settlement agreement by continuing to run the ads, and for their continued failure to adequately disclose to consumers that they would be charged $79.95.
Fast forward to 2008: Experian’s most recent TV advertising features three guys singing a catchy little jingle with the lyrics “F-R-E-E, that spells free. Credit report dot com, baby.”
That wasn’t the first time – or even the second time – Experian has run afoul of the FTC. In 2000, Experian, along with Equifax and TransUnion, was ordered to pay a total of $2.5 million for violating a Fair Credit Reporting Act (FCRA) provision requiring credit bureaus to have a toll-free phone number for consumers with questions about errors on their credit reports.
The FTC found that Experian and the others had blocked millions of calls, or deliberately kept callers on hold for unreasonably long periods of time. Between 1997 and 2000, more than a million callers either got busy signals or were only able to reach a recording telling them to call back another time.
Even if they somehow manage to stay clear of the FTC for their ongoing advertising, their “F-R-E-E” credit reports have created other problems for them. The Florida Attorney General’s office has been investigating Experian since October 2006. You can probably guess what they’re looking into: Experian’s failure to adequately disclose the option of not enrolling in the credit monitoring service when requesting a “free” credit report, deceptive advertising, misleading domain name, and failure to honor cancellations.
How Experian makes their money
Experian didn’t make $4.1 billion in 2007 just by selling consumers their own credit records or hoodwinking them into the credit monitoring services. Like all credit reporting agencies (CRAs), Experian makes most of their money selling consumers’ information to other companies.
They collect all that credit data, plus your name, address, employment, and information on any lawsuits, arrests, judgments and bankruptcies. They make their money by selling your information.
For an additional fee, they even provide what’s called an “investigative consumer report.” Oddly, an investigative consumer report doesn’t include consumer information; it includes subjective information on your character, reputation, personal characteristics, or mode of living obtained through personal interviews with neighbors, friends or associates.
Marketing companies also buy lists of consumers based on surveys, demographic sources and public records. Ever wondered how an unfamiliar insurance company knew to send you a special offer, just weeks before your auto warranty expired? Mystery solved: they probably bought your information from Experian who also maintains records on driver’s licenses, auto registrations and insurance policies.
Another revenue source is their notorious $79.95 credit monitoring service which might – or might not – be the impetus for a lawsuit Experian brought in February of this year against LifeLock, an identity theft protection service.
What you need to know about Experian and their lawsuit against LifeLock
It’s almost like the story of David and Goliath…only in reverse. Credit reporting giant Experian sued an upstart identity theft protection company, purportedly, in an effort to protect consumers from exploitation and false advertising.
The allegations are based on Experian’s interpretation of the FCRA, and the availability it provides for fraud alerts. A fraud alert is a simple statement placed in a consumer’s credit file that says the consumer either has been, or is concerned they may become a victim of identity theft.
Like other identity theft protection services, LifeLock contacts one of the three credit reporting agencies, and requests that a fraud alert be placed on each customer’s credit file. Because fraud alerts expire every 90 days, LifeLock automatically renews them for their customers, unless the customer notifies them not to.
The idea behind fraud alerts is that prospective creditors checking the consumer’s credit report will then take precautions to confirm the credit applicant’s identity.
Experian claims to have lost millions of dollars because of LifeLock’s filing “bogus” fraud alerts for their customers. They assert that the fraud alerts are “bogus” for two reasons:
- LifeLock is not “an individual,”
- Fraud alerts are intended to protect only people who have been or fear they will become victims of identity theft. According to Experian, the customers LifeLock represents aren’t entitled to fraud alerts, and LifeLock is perpetually “crying wolf” by renewing the fraud alerts every 90 days.
LifeLock’s side of the story
LifeLock feels that they’re acting in accordance with the spirit of the law, and in the interests of the consumer. And, because data breaches have compromised the personal information of roughly 250 million Americans since 2005, any reasonable person should have a fear of becoming a victim of identity theft.
Finally, LifeLock asserts that their customers are paying for the convenience of their service; even the most concerned consumer may prefer to let someone else place and renew fraud alerts.
For a fee of $10 a month, LifeLock takes several other steps to protect their customers from identity theft, including reducing junk mail an
LifeLock CEO Todd Davis claims he wasn’t surprised by the lawsuit, filed in the US District Court for the Central District of California. According to
Experian wants the court to make LifeLock reimburse them for all their expenses relative to LifeLock’s fraud alerts, and a “disgorgement” of any profits that LifeLock may have earned as a result. Experian is also seeking unspecified punitive and compensatory damages, plus an injunction barring LifeLock from continuing to engage in its allegedly false and misleading advertising.
So, why the lawsuit against LifeLock?
Maybe it’s because just weeks before the lawsuit was filed, LifeLock announced they’d received $25 million in backing from Goldman Sachs. Maybe it’s because LifeLock has experienced phenomenal growth, and their service is in direct competition with Experian’s credit monitoring service. Or, maybe it’s because all those fraud alerts make it harder for Experian to sell consumer information. That, after all, is their real bread and butter.
Whatever the reason, the lawsuit has produced one final irony: Experian’s stock value fell when they announced the lawsuit. Since the lawsuit, LifeLock—a privately held company–has enjoyed a 50 percent increase in customer enrollment.