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Do You Know Your Credit Score? It Might Not Be Accurate

Do You Know Your Credit Score? It Might Not Be Accurate

photo credit: LendingMemo via photopin cc

By Gabriel Hopkins
Thornton-Robb Attorney

Say you want to refinance your mortgage, or take one out. Or you want to buy a car. Better know your credit score, right? Good information to have so you can shop around and get a fair interest rate, right? Absolutely.

So where do you get one? Why, from your friendly neighborhood credit-reporting agency, like TransUnion Corp. They’ll sell you a credit score for the low, low price of $39.90! But wait, there’s more! The credit report you buy might be completely useless.

The reality is that up to 25 percent of consumers who buy a credit score are seeing a different number than what their lenders see. Public Justice is helping battle this deceptive business practice.

Credit scores are a numerical representation of a person’s credit risk to lenders, so there has to be some formula for calculating that number. Back in the 1950s, the Fair Isaac Corp. developed the “FICO score” to rate potential borrowers. By the 1980s this scoring system was widely adopted by lenders and remains the dominant system for calculating credit scores today. About 10 years ago, the three big credit reporting agencies, including TransUnion, developed their own formula that they call “VantageScore.” As two reports from the Consumer Financial Protection Bureau have detailed, these two formulas can produce different results – sometimes drastically different – that can lead to a potential borrower and her potential lender having very different ideas about the borrower’s credit risk.

The problems these disparities can cause are obvious. The real issue, at least in the case of TransUnion, is that the company doesn’t tell its customers that the scores they buy might not match what lenders see. This omission takes a key piece of information away from borrowers trying to navigate the already complicated credit market.

Earlier this year, a Missouri man whose TransUnion credit score was more than 100 points higher than the score his lender was looking at brought a class action suit asking the court to declare that TransUnion’s failure to tell customers about the nature of its product was a violation of several state and federal consumer protection laws, and demanding that the company return customers’ money. Now TransUnion is trying to kick the case, Sgouros v. TransUnion, out of court, and resolve it quietly in a private arbitration proceeding, by invoking a clause in a contract that it claims customers agree to when they buy credit scores through its website.

Last Friday, Public Justice filed a brief opposing this move.

The U.S. Supreme Court has made clear that “arbitration is a matter of contract”—and that means companies cannot force a consumer into arbitration unless they can prove the consumer actually agreed to arbitrate her claims.  If the contract is online, courts look to see whether the terms are displayed in a way that the consumer would notice them and understand that, by making a purchase, she is accepting and agreeing to them.  In this case, TransUnion claims the contract was “available on the webpage” where consumers but their scores—but the plaintiff never saw it, let alone agreed to it. As we point out in our brief, the webpage does not prompt users to agree to the contract; it does not contain the familiar check-this-box-to-continue-button next to the terms; and in fact, the webpage instructs users that by clicking “I Accept,” they agree to let TransUnion use their personal information to confirm their identity and generate their scores, not to give up their day in court. While the law generally respects contracts formed online, it is important that companies are not allowed to employ deceptive layouts and bait-and-switch tactics to catch customers in unfavorable contract terms, which is itself a growing problem.

Public Justice is drawing a line in the sand, so that consumers will get the accurate information they need, and won’t get blindsided by hidden contract terms.