Recently Equifax, one of the three national credit bureaus, agreed to a settlement with the Federal Trade Commission (FTC) for $393,000. The Federal Trade commission fined them for improperly selling lists of consumers who were late on their mortgage payments. Equifax sold more than 17,000 prescreened lists of consumers to Direct Lending Source, Inc., which resold the lists to third parties. These third parties used the data to offer loan modification and debt relief services to people in financial distress. Direct Lending Source was fined $1.3 million civil penalty and barred for using or selling prescreened lists without a permissible purpose or having to do with debt relief. NOTE: The CFPB just cracked down on two companies who were deceiving consumers with promises of mortgage relief through loan modifications.
Equifax violated the Fair Credit Reporting Act (FCRA) and the Section 5 of the FTC Act. They violated the Fair Credit Reporting Act, because they sold prescreen lists without giving consumers a firm offer of credit or insurance. Equifax violated the FTC Act, because they failed to use appropriate measures to control access to sensitive consumer information.
According to the Federal Trade Commission, Equifax sold prescreen lists to Direct Lending and its affiliates from January 2008 to early 2010. The lists contained “sensitive information” such as credit scores, and late payment information on mortgages. Neither Direct Lending nor its affiliates had permissible purpose to obtain these prescreened lists. Prescreen lists contain names of consumers that have met credit criteria to receive a pre-approved firm offer of credit or insurance. An offer to apply for credit or a marketing piece is not permissible purpose. Based on complaints against two of the third parties, Nova Key LLC of Maryland and Mason Capital Group LLC of California, these companies convinced distressed home owners to pay upfront fees for loan modifications and did not deliver.
In addition, the Federal Trade Commission claimed that Equifax did not follow-up to make sure these companies were not violating the law. Equifax did not properly investigate Direct Lending Source, when they found out that Direct Lending was violating the permissible purpose use of pre-screened lists. Equifax continued to sell lists to Direct Lending and Equifax should have known which companies were buying the lists and the use of these lists.
Proposed Equifax Settlement
In addition to paying $393,000, the proposed settlement, which will be finalized in November, Equifax must comply with the following:
Equifax cannot provide prescreened lists to any company it believes doesn’t have permissible purpose.
Equifax must have reasonable procedures to limit prescreen lists to anyone who doesn’t have permissible purpose.
Equifax is prohibited from selling prescreened lists that will be used to offer advanced fee products and services for debt relief products or mortgage assistance relief.
Direct Lending settlement
In addition to paying $1.2 million penalty, Direct Lending is prohibited from the following:
Using or obtaining consumer reports without a permissible purpose.
Using or selling consumer reports to solicit for debt relief or mortgage assistance relief products or services offered by companies that charge advance fees.
Not disclosing the end user of the report and permissible purpose to the consumer reporting agency that furnished the original report.
Failing to establish and comply with reasonable procedures to ensure that a report is resold only for the purpose intended.
The Federal Trade Commission is cracking down on abuse of the law. This was not an appropriate use of the information. Credit reporting agencies must make sure that the end user follows the law; they are responsible for what happens to the data.
Credit Reporting Expert, John Ulzheimer, is the President of Consumer Education at SmartCredit.com, the credit blogger for Mint.com, and a Contributor for the National Foundation for Credit Counseling. He is an expert on credit reporting, credit scoring and identity theft. Formerly of FICO, Equifax and Credit.com, John is the only recognized credit expert who actually comes from the credit industry. Follow him on Twitter here.