CHICAGO (CN) — The Consumer Financial Protection Bureau sued the credit reporting agency TransUnion on Tuesday morning, claiming it has spent years grifting people seeking to use its credit reporting and monitoring services.
The CFPB said the lawsuit, filed in Chicago federal court, was necessary after TransUnion and one of its top executives, John Danaher, failed to heed the watchdog's 2017 warning to cut out their allegedly deceptive practices that the agency says have been ongoing since 2011.
“TransUnion is an out-of-control repeat offender that believes it is above the law,” CFPB Director Rohit Chopra said in a statement. “I am concerned that TransUnion’s leadership is either unwilling or incapable of operating its businesses lawfully.”
The CFPB accuses the Chicago-based TransUnion, along with its subsidiaries TransUnion LLC and TransUnion Interactive, of utilizing "dark patterns" to keep up its multibillion dollar revenue stream. The agency describes such patterns as "hidden tricks or trapdoors companies build into their websites to get consumers to inadvertently click links, sign up for subscriptions, or purchase products or services."
Specifically, the lawsuit claims that the credit agencies deceptively enticed people looking to use TransUnion's credit monitoring and reporting services to join a paid subscription service that was difficult to leave. In order to use TransUnion's services, consumers had to register with the agency by providing their credit or debit card information. The suit alleges that TransUnion marketed "trial" subscriptions for its services that were free or only cost a dollar, but in reality automatically enrolled cardholders in a paid monthly service that could only be canceled by the customers directly contacting TransUnion to opt out of it.
The price of TransUnion's credit monitoring subscription service, according to the agency's own website, is $24.95 per month plus tax.
The suit also alleges that TraunsUnion misrepresented the type of credit report it was providing to its customers. The agency's so-called VantageScores, the result of an algorithm developed jointly by it and the two other major U.S. credit agencies Experian and Equifax, are not always the credit scores that lenders use when evaluating an individual's creditworthiness. The most popular credit scoring system in the U.S. – used by some 90% of lenders, according to a 2021 report – is the FICO score developed by the Fair Isaac Corporation.
"Corporate defendants falsely represented that the credit scores they marketed and sold to consumers were the same scores lenders typically use to determine creditworthiness, when, in reality, the scores used to determine creditworthiness by lenders and other commercial users were highly unlikely to be the scores sold to consumers by corporate defendants," the complaint states.
All this has been occurring with Danaher's knowledge, according to the CFPB. He served as TransUnion Interactive's president from 2004 to April 2021, and acted as its executive vice president from April 2021 to February 2022. TransUnion Interactive is the subsidiary that, as its name suggests, interacts with consumers most directly through marketing. The CFPB alleges that Danaher got rich off TransUnion shares while turning a blind eye to the deceptive practices that helped make the agency so profitable.
"According to filings with the Securities and Exchange Commission, since 2016, Danaher received over $10 million from the sale of TransUnion stock shares that were acquired by him as part of his compensation package," the CFPB said in a press release.
The 2017 consent order that both Danaher and TransUnion entered into with the CFPB was more than a simple verbal warning. It was a legally binding command for TransUnion to inform consumers that its VantageScores may not be used by all lenders, to obtain consumers' informed consent before enrolling them in recurring-payment subscription services, and to allow consumers to easily opt out of those services. To keep the matter out of court, the CFPB said TransUnion also agreed to pay a $13.9 million settlement in restitution to its customers, plus $3 million in civil penalties.
TransUnion has defied the consent order "since the day it went into effect," according to the lawsuit.
"Rather than comply with the terms, the company continued to engage in deceptive conduct in its marketing and sale of credit-related products, it failed to provide required disclosures to make its marketing not misleading, and it failed to assemble and review consumer information and implement appropriate improvements to advertisements," the CFPB's press release said.
TransUnion's website currently does include a disclaimer stating that not all lenders use its VantageScore system, as well as listing the monthly price for its monthly credit monitoring subscription. However, no information is listed in the disclaimer on how to opt out of the subscription. The webpage was last updated on March 18.
The credit reporting agency did not immediately respond to a request for comment on the allegations against it. But in a statement, it said the CFPB's claims were "meritless." It argued the consumer watchdog had purposefully ignored its good faith efforts to comply with the order and offered no guidance on how to improve in areas of concern.
"We have been in compliance with our obligations and we remain in compliance with the consent order today. Rather than providing any supervisory guidance on this matter and advising TransUnion of its concerns – like a responsible regulator would – the CFPB stayed silent and saved their claims for inclusion in a lawsuit, including naming a former executive in the complaint," TransUnion said.
The statement also hinted that TransUnion plans to fight the matter in court.
"Despite TransUnion’s months-long, good faith efforts to resolve this matter, CFPB’s current leadership refused to meet with us and were determined to litigate and seek headlines through press releases and tweets," it said. "The CFPB’s unrealistic and unworkable demands have left us with no alternative but to defend ourselves fully."