But while the government has taken issue with the ads, it has had little to say about credit monitoring services themselves, a rapidly expanding niche approaching $1 billion in sales for which millions of people have signed up, often unwittingly. The problem, say critics, is that most people really don’t need it.
Credit monitoring provides customers with real-time updates about changes to their credit files that might affect how lenders see them. These services can be useful for identity theft victims, for example, who want e-mail alerts about new accounts that thieves might have opened in their name.
Yet for the vast majority of consumers whose credit status doesn’t change quickly or drastically, a monitoring service is a waste of money, these critics say. Keeping a close eye on your bills and checking your credit report several times a year is enough.
And that can be done without spending a penny because the government requires the three major credit bureaus — Experian, which owns freecreditreport.com, Equifax and TransUnion — to provide one free report annually to consumers.
“Does the average person really need to see their credit reports more than once every four months? Do you need to look at it daily?” asked Edgar Dworsky, founder of ConsumerWorld.org and a former member of Experian’s consumer advisory panel, referring to credit monitoring services. “That’s paranoia.”
While other companies sell credit monitoring too, Experian is the biggest player in the lucrative niche of selling monthly monitoring. Nine million people are spending a total of $650 million to $700 million annually on the services, according to Carter Malloy, a Stephens Inc. analyst. Experian’s market share is more than twice that of its three main competitors combined. To replenish its rolls, the company relies heavily on its slacker ads, spending $54 million in 2008 to blanket the airwaves, according to TNS Media Intelligence.
The monitoring business is profitable enough that big credit card companies, including Capital One and Discover, now partner with Experian to sell private-label versions of the monitoring service directly to their customers, taking a cut of the fees and giving the rest to Experian.
So far, the F.T.C. has focused mostly on the free credit report come-on. In the last five years, Experian has paid $1.25 million to settle F.T.C. charges that it misled consumers who may have been seeking their free credit report at AnnualCreditReport.com, but ended up paying for a subscription on the similarly named freecreditreport.com.
Still, Experian continued to spend heavily on marketing that played to the anxiety many Americans feel about their credit amid the financial crisis. In an attempt to counter it, Congress attached a measure to a recently passed credit card reform law directing the F.T.C. to press sites like freecreditreport.com to provide more prominent disclosures.
Ty Taylor, president of Experian’s Consumer Direct division, said the company’s process was transparent. “You get a free credit report and free score for test-driving our product,” he said, referring to the credit monitoring service. “We’ve always felt that it’s been very upfront and a fair opportunity for the consumer to become more aware and comfortable with the credit reporting concept.”
Profiting From Confusion
Twenty years ago, the only way for most consumers to get a sense of their credit history was by buying their credit report from credit bureaus or getting it free if a lender rejected a loan because of something in the report. Credit reports contain, among other things, a list of past and current creditors and a record of the borrower’s payment history.
Meanwhile, a company called Fair Isaac had invented an algorithm for what is known as the FICO credit score. Scores range from 300 to 850 and helped lenders create high-priced loans for people with checkered histories while reserving the best rates for people with high scores.
The FICO score grew in importance in the mid-1990s as Fannie Mae and Freddie Mac encouraged mortgage lenders to use them. Around the same time, a company called ConsumerInfo.com began selling credit monitoring. It acquired the freecreditreport.com domain name and gave out free credit reports (and, eventually, free credit scores) if consumers subscribed to the monitoring service. Experian bought the company in 2002.
The next year, to grant consumers better access to their credit information and allow them to check for errors, Congress required the three credit bureaus to give one free credit report to every American each year. Almost immediately, however, consumers started confusing the government-authorized site, AnnualCreditReport.com, with Experian’s freecreditreport.com site. Smelling opportunity, Experian bought ads on Google and other sites that diverted some people looking for their legally mandated credit reports.
At one point, the F.T.C. asked Experian to give it the freecreditreport.com URL to end the confusion, but the company declined. “Experian was not going to give it up,” said a spokeswoman, noting that the site had been in operation for years. The F.T.C. has since set up its own site at freecreditreport.gov.
Evan Hendricks, who used to serve on the consumer advisory panel for Experian and is now the editor and publisher of Privacy Times, said the company knew the Web site’s name would sow confusion.
“We had these roaring debates, saying you can’t call it freecreditreport.com because it’s not free,” said Mr. Hendricks, who has also been an expert witness on behalf of consumers suing to correct errors in their reports and has testified against Experian. “We had put them on notice,” he said. “But the money spoke louder.”