A subsidiary of Experian, one of the three major credit reporting bureaus, has reached a settlement with the Federal Trade Commission, which accused the company of deceiving consumers with offers of "free credit reports" while signing them up for a monitoring service that cost nearly $80 a year.
Consumerinfo.com Inc. agreed to make refunds to customers, to stop the misleading claims and to turn over $950,0000 in ill-gotten gains that may be used for consumer education, federal regulators announced yesterday.
Additionally, the FTC is sending letters to operators of more than 130 Web sites that mimic the official site where consumers get free credit reports under federal law. Often these impostor sites market credit-related services for a fee.
The FTC settlement with Consumerinfo is the first since the passage in 2003 of a federal law that entitles consumers to one free credit report a year from each of the three national credit bureaus.
The federally mandated reports began rolling out in December on the West Coast. Next month, Maryland and other Eastern states, and the District of Columbia will be the last to become eligible, although Marylanders already are entitled to them under state law.
In its complaint against Consumerinfo, the FTC said the company steered consumers to two Web sites - www.freecreditreport.com and www.consumerinfo.com - through ads promising free reports and a free trial of a credit-monitoring service. Customers were asked to supply their credit card information to establish their account.
But the company failed to adequately disclose that consumers must cancel the monitoring service within the 30-day free trial or be charged $79.95 for a yearly membership, the FTC said. Memberships sometimes were automatically renewed and customers were billed for another year without being told, the FTC said.
Consumerinfo's freecreditreport.com Web site also misled consumers into believing it was associated with the free reports mandated by federal law, the FTC added.
"There is only one official source for free reports authorized by federal law," said Lydia B. Parnes, director of the FTC's bureau of consumer protection during a news conference. That site, www.annualcreditreport.com, is the only U.S. government site where consumers can get a federally mandated credit report.
"We absolutely regret any confusion or concern caused by our product offers," said Peg Smith, executive vice president with Experian, which acquired Consumerinfo in April 2002. Smith said the company has worked to improve disclosure.
As part of the settlement, Consumerinfo will send about 1 million letters to consumers who are eligible for a refund, she said. Refunds could be as high as $79.95, although consumers will see less if they've already received a partial refund.
The FTC's other worry is about impostor Web sites that imitate www.annualcreditreport.com. The World Privacy Forum, a nonprofit research group in California, reported it found 112 active impostor credit report sites as of June.
The FTC will write to operators of more than 130 sites, telling them to fix problems that might lead to consumer confusion, Parnes said. "We will be monitoring the Web sites," she said.
Also, the FTC is purchasing sponsor links on search engines that will warn of impostors and link consumers to the right site. An FTC consumer alert on the subject is available at www.ftc.gov/freereports.