U.S. seeks clear path to (really) free credit reports

You've probably seen or heard ads featuring catchy tunes and jingles for Web sites claiming to help you get a "free" credit report.

The problem: Those sites aren't the official government-mandated site (AnnualCreditReport.com) for obtaining free reports entitled to you each year by federal law. At these soundalike sites, "free" isn't really free -- it comes with strings attached. They sign consumers up -- sometimes without their knowledge -- for credit monitoring services and charge recurring monthly fees to their credit cards.

Curbing 'confusing' ads, practicesThe Federal Trade Commission (FTC) has proposed new rules to help decrease the number of consumers who are duped into signing up for services they don't want and make it easier for people who only want to get their free credit reports to do so -- without hassle.

"There has been a proliferation of confusing advertising regarding where consumers can obtain their free annual [credit] file," according to the FTC.

The new rules were drafted because a provision in the Credit CARD Act of 2009 says, beginning Feb. 22, 2010, radio, TV and other ads for free credit reports must include the following disclaimer: "This is not the free credit report provided for by federal law."

"These advertisements direct consumers not to AnnualCreditReport.com, the authorized source for free annual file disclosures, but to commercial Web sites operated by the nationwide CRAs (credit reporting agencies) or others that sell a variety of products and services," according to the FTC. "Further, when a consumer uses an Internet search engine to find the Web site for free annual file disclosures, the search engine will usually list 'sponsored' links -- again, selling products and services -- such as 'FreeCreditReport.com' first. As a result of this advertising, consumers are often misled and confused about where to go to obtain the free annual file disclosure mandated by federal law."

The FTC is also seeking to make getting free credit reports on the official site -- AnnualCreditReport.com -- less confusing for consumers. Today, the site makes it easy for consumers to get sidetracked from the "free" path with ads and special offers for additional services that are not free. The proposal would ban those pitches until after consumers have signed up for their free reports. Also banned: requiring consumers to set up accounts on the site before they can get their free reports.

Hundreds comment on proposed rulesOf the more than 1,000 comments filed with the FTC about the proposed changes, an overwhelming majority support the new rules. U.S. Sen. Carl Levin, the National Association of Attorneys General and the National Consumer Law Center were among those supporting the rules. Among those expressing concerns for commercial expression on the Internet and free commerce were: the Interactive Advertising Bureau, National Business Coalition for E-Commerce and Privacy and the Direct Marketing Association. The majority of comments were from consumers, some fuming over what they call deception when trying to obtain their free reports.

"The last time I got mine, I ended up paying a monthly fee for about six months before I identified the charge. This should not be tricky for senior citizens or anyone else," writes Patricia Poklemba of Virginia.

"Getting a 'free' credit report is one of the most confusing and frustrating experiences there is," writes Nicolas Guzman of Virginia. "The credit reporting companies do everything they can to confuse you and get you out of the 'free' site and into their paid services. This must stop. Nonfree commercial links should be CLEARLY stated as such or prohibited."

"I have to be very careful when I request my report to make sure I am on the right site and am not requesting any additional services I don't want," Carolyn Halloway wrote in her comment.

The FTC will review the submissions and decide whether to revise the proposals or publish final rules in time for the Feb. 22 credit card law effective date.

Criticism of commercial siteMany people criticized the most visible of the commercial Web sites, FreeCreditReport.com, which is owned by Consumerinfo.com Inc., a division of the Experian credit reporting bureau. Television ads for the site feature humorous depictions of singing, costumed identity theft victims. They could have avoided the ensuing problems, the ads claim, if they had checked their credit reports on FreeCreditReport.com. In 2005, the FTC filed suit against the site and has collected more than $1 million in fines for deceptive marketing tactics. The FTC got so many complaints about FreeCreditReport.com that the agency even produced a commercial of its own spoofing the commercial ad and raising consumer awareness of AnnualCreditReport.com.

"I am SO sick of hearing the false advertising in 'FreeCreditReport.com' commercials I could scream," writes David LaReau of Illinois in comments filed with the FTC. "I almost got suckered into this some time ago, until I refused to enter a credit card number. These ads are lies and should be outlawed (isn't false advertising illegal?). You get a free credit report if you pay for it; if you have to pay for it, it isn't free, is it?"

An Experian representative indicated that if the FTC rules become final and they have to include disclosures on their FreeCreditReport.com ads, it will comply. "We remain committed to clearly and conspicuously disclosing to consumers that the free report we offer is not the free annual credit file disclosure provided by federal law," according to a statement.

Even legitimate site has problemsAnnualCreditReport.com is a Web site that was launched in 2004 after the Fair and Accurate Credit Transactions (FACT) Act established guidelines for consumers to receive one free credit report from each of the three major credit reporting bureaus (Equifax, TransUnion and Experian) annually. The law allows consumers to apply in one of three different methods: by a toll-free phone number, in writing or via the centralized Web site. Since many consumers have reported being confused by commercial advertising sprinkled throughout the order process for the free report, many consumer advocates advise people to put their requests in writing. (See How to get the actual free credit report.

When applying through AnnualCreditReport.com, the site first asks consumers for their state of residence and then opens a form seeking their name, address, date of birth and Social Security number. Consumers must then select which of the three credit reporting agencies (CRAs) from which they wish to obtain their free credit report. Once selected, consumers are redirected to an Experian, Equifax or TransUnion site. They ask questions about one of your active credit accounts (i.e., What is the typical balance paid on a mortgage that you hold? With which financial institution do you hold the loan?). This is to help verify that they have the correct person's credit report.

Obstacles clutter 'free' pathAfter that, the selling starts. The Equifax order process, for example, starts with an offer to view your FICO score once for $7.95 when you receive your free credit report. Another offer on the same page pitches a service for two in-depth FICO scores for $7.95 per month. Consumers must click "No thanks" on that offer page before they can continue processing their request for a free credit report. Other services are pitched through the checkout process and consumers who do not want to pay additional fees must be careful not to select any of the products.

The FTC wants all of those advertisements removed from the process. Under the proposed rules, the agencies would have to wait until after consumers receive their free reports to contact them for additional paid services.

James Odell of Virginia said the easiest part of getting his free credit report online in October 2009 was selecting which of the three credit bureau reports he wanted. "After that, I found it quite confusing trying to stick strictly with the free site when it kept giving links to other places and advertising ads," Odell wrote in his comment. "Make this form simple: Remove all the ads and you get your credit report within minutes! IF people want their credit score or other services they can get them after the 'free' credit report is shown to them online."

Rules go too far, industry group saysIn the five years since the free credit report rules went into effect, about 150 million free credit reports have been sent to consumers, according to comments filed by Stuart Pratt, president and CEO of the Consumer Data Industry Association (CDIA), a trade group representing the major credit reporting bureaus.

The group contends the FTC is overstepping its authority by banning special offers and ads while free credit report requests are processed. "The rule's coverage ends once a consumer requests the free file disclosure; it does not extend beyond that point," Pratt asserts. In addition, the group argues, banning the ads violates the bureaus' right to free expression. They argue that getting a credit score along with the free credit report enables consumers to learn "how information in their credit report files affects their credit score."

Pratt notes that the proposed rules don't go far enough in curbing practices of third-party commercial sites that aren't affiliated with the three major CRAs, but charge fees for consumers to obtain "free" credit reports. "The FTC's proposed rule does not focus on these kinds of abuses," he writes.

Charles Burnett, president of Evergreen Credit Reporting, a small Nevada CRA that operates creditreporting.com, said in comments his business will be affected by the proposed rule requiring any Internet sites that offer "free" credit reports set up a separate Web page (called a landing page) that includes the FTC disclosure: "This is not the free credit report provided for by federal law. To get your free report, visit www.AnnualCreditReport.com or call (877) 322-8228."

Burnett called the rule "extreme," adding the landing page will direct "most if not all" potential customers to the government Web site "whether the customer is looking for the free annual credit report under law or not."

He adds: "We do not attempt to mislead consumers, but we do generate revenue for our company by selling credit reports and related products to consumers, and we are sensitive to FTC requirements that may adversely affect our ability to sell legitimate products."

The U.S. Chamber of Commerce also filed comments objecting to the separate landing page requirement. "... The proposed rule would greatly discourage consumers from obtaining products on commercial sites. Businesses offer consumers a variety of useful products, many of which have been vetted by regulatory agencies. By setting up roadblocks to the sites that offer the commercial products, however, many consumers will be deterred from taking the extra steps necessary to obtain such products."

The Council of Better Business Bureaus Inc. reports getting "thousands of complaints annually from consumers under the current system whereby consumers are required to set up an account or provide a credit card, before they are able to access their free annual credit report. Because the reports are free, there is no reason to require a consumer to provide his or her credit card or to set up an 'account' with the CRA," according to comments filed by Rodney L. Davis, the BBB's vice president of programs and services.

Another commenter, James Fenelon of California, says he supports the new rules. "In March 2009, while trying to obtain a free report from Experian, confusing links and instructions led me without realizing it to another site called FreeCreditReport.com. Without warning or authorization, I began receiving $4.95 monthly charges on my credit card bill. It took phone calls and a hostile representative and action by my bank to stop those charges. I support any amendments and changes in rules that will prevent the consumer from being tricked into this fraudulent behavior by the credit reporting agencies."

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