The Citibank Settlement and Consumer Trickery

my_ficoI recently advocated buying one’s FICO score for about $20, but warned that the process of buying only that one thing – and not getting semi-swindled into some expensive monthly credit-monitoring program – is actually much harder than one should expect.

You start out trying to buy that one thing…but the websites of the credit bureaus Experian, Equifax, and TransUnion  plus are all designed to get you to buy a much more expensive recurring-cost thing (that you don’t really need). Or they offer it ‘free’ for the first 30 days, but you end up paying for years after that, for the originally free 30-day thing.

Anyway, this kind of consumer marketing strategy goes on pretty often 1

What goes on less often is the catching of the company in the act of being really skeevy with these practices.

Also, there’s aggressive marketing practices, and then there’s outright misrepresentation. Citibank agreed this week to refund $700 million to customers for doing exactly what I was describing about the Fico scoring/credit bureau companies.

citibank_trickeryCitibank charged $14.95/month to some customers for ‘credit-monitoring’ services that it wasn’t actually performing. In other cases they offered a ‘free trial’ for a month on identity fraud protection, but charged customers right away, skipping the free part they had promised.

I’m sure there’s a lesson or two there somewhere. Something about seemingly free things that actually cost a ton of money over time.

See related posts:

Buy your FICO score – Part I

But don’t buy too much FICO – Part II



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  1. If you squint your eyes a little bit you could argue that in some ways this is the basis for much of both retail banking and investment advisory. Like, here’s some ‘free’ portfolio construction advice that you don’t pay upfront for, and now I will charge you pretty hefty fees on a quarterly basis for doing very little follow-up work, over the next 30 years. I’m being a little unfair to investment advisors, but there’s a kernel of truth there.

FICO Scores Change – Is Nothing Sacred?

fico_changesFar be it for me to stand in the way of progress, but did a little part of you die when you read this morning that Fair Isaac Corp will slightly alter its FICO score formula to make it easier for people to get loans?

Is nothing sacred?

Decline of Western Civilization?

My immediate thought was that deflated feeling I got when I heard, in 1995, that the College Board would recenter the SAT to 500, because average scores kept dropping. Ugh. How would I know whether my SAT scores are higher than my kids’ scores? We can’t even compare now.

How will kids develop a competitive drive if they don’t know how their old man did on the SAT?

I remember when not every kid would get a shiny ribbons for “participation.” Instead, we would only get the giant trophy if you WON, and pummeled your youthful opponent into abject submission.

I mean, I remember when I used to walk all the way to school, uphill both ways, in a driving blizzard. And back for lunch.

And we loved it.

FICO scores

Anyway…back to FICO. According to the WSJ this morning, the makers of FICO will drop ‘settled’ delinquent accounts from their formula for calculating their key number used by practically every US lender in consumer credit decision-making. The result is that for people who had made late payments or let debts go to collections – but later paid or settled the accounts – the negative mark on their credit will drop off quickly.

The second change in the FICO formula is to de-emphasize the negative effect of delinquent medical bills.

Since FICO scores have traditionally been quite sensitive to a history of delinquent payments, the result is that millions of people could see their scores rise as a result of the formula change. Higher scores theoretically means that more people will have access to credit.

The point of the FICO score – for lenders – is to offer a snapshot of the probability of future consumer loan defaults. Fair Isaac says they studied whether the history of delinquent – but paid – accounts mattered to calculating these probabilities. Following the study, they said they could reliably drop the paid collection accounts, as well as lower the impact of medical delinquency and still maintain the same predicative power in the score.

A caveat

Although this change made the front page of the WSJ this morning, the real impact could be completely unrealized. Deep in the article Fair Isaac Corp says they will implement this more forgiving FICO formula via a new score called “FICO 9,” which makes it sound like this is just a supplemental score that banks could decide to pay attention to, or not.

Lenders make their own decision about what FICO score to buy, and they may not choose to shift from traditional FICO to FICO 9.

Like a college deciding to review the ACT rather than the SAT. So we’ll have to see whether banks adopt the new score or just ignore it.



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