Did TransUnion’s Website Mislead Consumers?

Washington, DCA small but significant court case is shedding light on the issue of consumer rights in the burgeoning world of online sales and, secondly, bringing TransUnion’s “credit score” marketing and sales strategy into question.

Gary Sgouros, a diligent consumer who wanted to see what was on his credit report, claims in a class-action lawsuit that he, and others, were cheated by TransUnion in terms of the product they were sold, and then suckered into agreeing to the company’s standard arbitration clause that preempts their right to sue if they found the TransUnion product to be unsatisfactory.

Credit reports are free

By law every American has the right to obtain a free “credit report” from TransUnion, Experian or Equifax. TransUnion offered Sgouros and others a more complete reading of their credit when they purchased a $39.99 “credit score” from them.

“They are selling a product that does not have any real value,” says F. Paul Bland, an attorney and Executive Director of Public Justice, a consumer and justice advocacy organization in Washington, D.C. “The credit score they are selling you is not used by anyone. It’s your Fair Isaac or FICO score that determines whether you pay more for your mortgage or a car loan. The TransUnion score is something they made up. It is not a meaningful gage.”

In Sgouros’s case, according to the court documents, he learned that the $39.99 credit score purchased from TransUnion was 100 points lower than the credit score TransUnion provided to a car dealership where he was buying a vehicle. TransUnion, again, according to the documents, uses one scoring model for lenders and a different model to generate the $39.99 scores.

The Fair Credit Reporting Act was amended several years ago making it possible for everyone to get a free credit report. What TransUnion has done, according to Bland, is find a way to monetize the request. “If you want to get your credit report from TransUnion or Equifax or Experian, you can get that for free if you go to the right place,” adds Bland.

No comment

LawyersandSettlements reached out to TransUnion for comment but received no reply.

Almost every online retailer, merchant and service provider requires that dissatisfied consumers submit to arbitration. (If they don’t click “I agree,” the transaction doesn’t proceed.) The arbitration process Bland says is often secretive, run by corporate defense lawyers and heavily weighted against the consumer.

Having said that, even the Supreme Court has repeatedly upheld and expressed confidence in the arbitration process. However, increasingly, when there is evidence that the consumer was “muddled” by the arbitration clause, courts rule in favor of the consumer.

“As an advocate I think the arbitration clauses are bad for the consumer. However, as a lawyer I know that you can’t make that argument,” says Bland. “The Supreme Court has made it clear that arbitration is preferred by federal law. Any state laws would be preempted. So the ongoing litigation around arbitration clauses is limited to situations where companies make mistakes in the arbitration clauses or essentially make a drafting error.”

Judge says website was confusing

After pouring over the TransUnion website, U.S. District Court Judge James Zagel ruled that, indeed, the website design led consumers to believe that they were agreeing to have their credit records checked when, in fact, consumers were agreeing to have complaints dealt with through arbitration. They were, in essence, clicking away their rights without being aware of what that click meant.

“I think Judge Zagel is right,” notes Bland.

Now that Judge Zagel has tossed out TransUnion’s bid to have the case settled by arbitration, it seems more likely that Sgouros’s class action will have its day in court.

“In this case TransUnion did a terrible job of setting up the clause,” says Bland. “So I don’t think they are going to be able to walk away from the consumer protection laws.”

Now here’s something really important

The Consumer Financial Protection Bureau was asked to review the “arbitration clauses” related to financial lending institutions. The bureau has been reviewing these clauses for years now and it is widely expected that it will have something to say soon. It is possible that when it comes to lending institutions, the “arbitration clause” that pre-empts a consumer’s right to seek redress in courts may go away.

It will still apply in most other situations, but when it comes to lenders, there may be a change.