That Visit to the Marriage Counselor May Hurt Your Credit Score

Same with a visit to a massage parlor, bar, tire and re-treading shop or billiard hall. Discrimination against consumers based on purchasing behavior is the heart of the issue in a lawsuit filed by the Federal Trade Commission against Atlanta-based card issuer CompuCredit Visa.

According to a report in Business Week,

The allegations, in part, focus on CompuCredit's Aspire Visa, a subprime credit card for risky borrowers. The FTC claims that CompuCredit didn't properly disclose that it monitored spending and cut credit lines if consumers used their cards at certain places. Among them: tire and retreading shops, massage parlors, bars, billiard halls, and marriage counseling offices.

"The company touted that cardholders could use their credit cards anywhere," says J. Reilly Dolan, assistant director for financial practices at the FTC. "What they didn't say was that you could be punished for specific kinds of purchases."

The algorithms for determining credit scores – and there are many different versions – are highly guarded. Your Credit Mama has outlined the basics of the FICO scoring model, which is based on things like debt utilization, on-time payments, etc. But it appears from this lawsuit that there are many undisclosed variables that can have a negative impact on your financial profile. If you've always suspected that purchasing behavior – not just payment history – influences your credit score, this case may prove you right.

The Federal Deposit Insurance Corp. is also seeking $200 million in penalties from CompuCredit in the matter.

Encore! TransUnion Class Action Settlement #2

The beleaguered credit reporting giant TransUnion has agreed to another settlement, this time to end litigation* that alleges they violated the Credit Repair Organizations Act (CROA) when they marketed and sold their credit score and credit repair products.

If at anytime between Dec. 1, 1999, and April 16, 2007, you used credit monitoring services provided by TransUnion or TrueLink, you are entitled to receive three months of credit monitoring services for free from TransUnion. This will give you unlimited access to your credit report and credit score.

To qualify, you will need to submit an authentication form by July 22, 2008. The form, which can be printed and mailed or filed electronically, is available at www.townessettlement.com/claim.php3.


*Townes v. TransUnion, LLC and TrueLink, Inc.

Get Your No-Strings-Attached Credit Score Thanks to TransUnion Settlement

If you had any type of loan account between January 1987 and May 28, 2008, you are entitled to learn your credit score – free of charge – and get at least six months of a monitoring service from credit reporting giant TransUnion. The monitoring service would provide e-mail notification of late payment reports or accounts opened in your name – red flags that would indicate identity theft.

More than 160 million Americans are expected to benefit from the proposed settlement – the largest class action settlement in U.S. history, according to Peter Chapman, editor of the Class Action Reporter.

Under the settlement (which is expected to be officially approved in September), consumers would be able to select one of two options:

• A basic service would provide free credit monitoring for six months. It normally retails for $59.75, according to the settlement. Those who select this service can also apply for a cash payment, which would be paid out of any remaining money in the $75-million fund after two years. (Although Your Credit Mama seriously doubts that there will be any money left in the kitty.)
• An enhanced service would provide nine months of free monitoring, plus use of a "mortgage simulator" that lets consumers see whether improving their credit score would affect their mortgage rates and how much they could save if it did. This option also includes access to one's insurance score, which is used by some insurers to set rates. The settlement values this option at $115.50.

BONUS: there are NO strings attached. A credit card number would not be required to sign up for either service. After the free service ends, TransUnion could not charge for an extension unless it was requested by the consumer.

The lawsuits came about because TransUnion – through a subsidiary company – sold consumers' private credit data to retailers and lenders that wanted to market to select types of customers. Federal law prohibits the sale of credit data except under certain circumstances – such as when the consumer applies for a loan.

You can register your claim beginning June 16 by visiting www.listclassaction.com or calling 866-416-3470. (As of today, the Web site is not up yet.)

Texas Man Successfully Uses LifeLock CEO's Identity to Get $500

From the annals of "I could have seen that coming" come reports that LifeLock CEO Todd Davis' widely publicized Social Security number has been successfully used by a man in Texas to trick an online payday lender into giving him $500. Davis learned about the fraud when the lender called him to collect.

This was not the first time people have tried to steal Davis' identity. According to a story today on Yahoo news, Davis reported that at least 87 unsuccessful attempts have been made. Of course, Davis pretty much asked for it by plastering his Social Security number on billboards, television ads and in print, practically daring would-be identity thieves and hackers to test his company's ability to prevent identity fraud.

LifeLock, already facing a lawsuit by credit bureau giant Experian, is now facing lawsuits from consumers in Maryland, West Virginia and New Jersey contending that the service did not work as promised. The lead attorney in these cases, David Paris, is trying to obtain class-action status, and claims he uncovered records of other people applying for or receiving driver's licenses at least 20 times using Davis' Social Security number.

Davis stands by his stunt. He told reporters, "There's nothing on my actual credit report about uncollected funds, no outstanding tickets or warrants or anything… There's nothing to indicate my identity has been successfully compromised other than the one instance. I know I'm taking a slightly higher risk. But I'll take my risk for the tremendous benefit we're bringing to society and to consumers."

LifeLock's services include helping consumers set up fraud alerts with the major credit bureaus, which inform them when someone tries to tap into their credit. The fraud in Texas occurred because the payday lender did not go through one of the three major credit bureaus before approving the transaction.

The services, however, can't completely immunize a consumer from identity theft. If a stolen Social Security number is used on a job application, on a form submitted for medical services or during an arrest, the lack of reporting requirements make it impossible for any company to know with certainty that someone's identity has been compromised.

That's not the end of LifeLock's headaches, however. The company is also being sued in Arizona over its $1 million service guarantee. The plaintiffs in the case claim that the guarantee is misleading because it only covers a defect in LifeLock's service.

The question that remains unanswered: when will tighter mechanisms be put in place to deter and report fraud?

Capital One Under Fire in California

The credit card giant Capital One, which has been in the crosshairs of consumer advocates for years, is mired in more lawsuits.

Lawsuit #1:

California Attorney General Jerry Brown has been eyeing Capital One for nearly two years, investigating the company for possible violations of the state's unfair business practices and false advertising laws. In November 2006, Brown first requested "books and records… and interviews with employees" due to "substantial concerns about the credit card practices of Capital One," including solicitations for credit card applications mentioning balance transfers and accounting closing practices.

The attorney general made subsequent requests for information as part of its ongoing investigation – to no avail. Capital One's response? They filed a lawsuit this month claiming that as a national bank, only the U.S. Office of the Comptroller of the Currency can examine its records or take any enforcement actions. Never mind the fact that when Brown made his requests, Capital One was NOT a national bank. In fact, according to Reuters, it wasn't until March 2008 – 18 months after the attorney general made his first request - that Capital One converted its Virginia charter to that of a national banking association.

Lawsuit #2:

Former Capital One cardholder James Krider has filed suit in the U.S. District Court, Central District in downtown Los Angeles, against Capital One and the three major credit bureaus over post-bankruptcy false credit reporting. Seems that Capital One continued to report three credit cards that had been discharged in his bankruptcy filings. After months of disputes, Capital One insisted it had the right to continue to report his discharged accounts as "delinquent" on his credit reports even though the debts had been discharged through the bankruptcy.

According to Krider's attorney, Robert Brennan (Brennan, Wiener & Assoc.), "a growing number of banks and credit card companies have quietly been 'pushing the envelope' on credit reporting of bankruptcy-discharged debt, hoping to pressure consumers who have recently been through bankruptcy to pay these debts.

"I admit, I am not proud of having to declare bankruptcy, but the bankruptcy notation on my credit reports is bad enough and that will be there for 10 years," Krider said in a press release issued by his attorney. "Having the credit card companies continue to report my old credit cards as still delinquent is doubly bad and makes it that much tougher for me to get back on my feet."

Krider is seeking money damages as well as a permanent deletion from his credit reports of any delinquent reporting of any accounts included in his bankruptcies.

The case is expected to go to trial in February 2009.

Identity Theft Protection or Legal Extortion?

If you've ever examined your credit card receipts, you've probably noticed that your credit card number has been reduced to a series of Xs with no more than four or five digits visible, and no other identifying information, such as expiration date.

That is, unless you've shopped at Costco, FedEx Kinko's, Toys 'R Us, IKEA, StubHub, Coffee Bean Tea & Leaf, or Jewell Food Stores, eaten at big Burrito Group eateries such as Mad Mex, purchased flowers at 1-800-FLOWERS or watched a movie at AMC Theaters.

These companies, among many others, have been targeted with class action lawsuits for violating a 16-month federal law designed to protect consumers' credit card information. The Fair and Accurate Credit Transaction Act (FACTA) prohibits companies from printing more than five digits of a credit card number or the expiration date on receipts to reduce the threat of identity theft.

Lawsuits have been flooding the legal system as consumers strike back against what they say is flagrant unresponsiveness to the FACTA statute. More than 300 class actions have been filed since the law went into effect in December 2006.

At stake is the livelihood of businesses across the country, from big box retailers and restaurants to small businesses such as parking garages and newsstands. With every noncompliant receipt assessed at anywhere from $100 to $1,000, companies are facing potential damages in the billions of dollars. The lawsuits are so financially damaging that retailers are threatening to file bankruptcy.

At issue is the fact that the plaintiffs don't need to demonstrate any real or actual damage caused by the violation or even that the companies had willful intent to cause harm. All they need is a receipt to claim statutory damages because a company has "flouted the law." Warehouse-club giant Costco is liable for as much as $17 billion – 15 times the company's 2007 profit – despite the fact that there are no claims of actual harm.

"In 22 years, I have never had a plaintiff sit across the table from me and say, 'I have no damages. My identity hasn't been stolen. I'm just bringing this lawsuit because I can,'" said David Block, a lawyer with Jackson Lewis, in a recent Law.com article. "There's something inherently wrong with a lawsuit where the plaintiff has no injury."

Defense lawyers are characterizing the lawsuits as "legal extortion," since the defendants did not profit from the infraction and plaintiffs have not shown evidence of actual harm. And some judges are paying attention – 12 have refused to certify some of these cases as class actions.

Many companies facing massive damage claims are quietly settling. Earlier this year, a class action lawsuit against big Burrito Group eateries was settled for FACTA violations. According to the settlement, customers who used a credit or debit card at various times at various big Burrito Group eateries last year are entitled to a $7 "settlement relief card." The cards can be used only at the company's Mad Mex restaurants under various restrictions. The settlement also calls for the company to pay for $105,000 in legal fees. Coffee Bean Tea & Leaf agreed to give customers free drinks and pay plaintiffs' lawyer fees. StubHub settled for undisclosed terms.

Should companies be compliant with the law? Heck yes. Should they be punished to the full extent of the law? Well, that depends. Bankrupting businesses or imposing maximum financial penalties will ultimately have a lasting negative impact on the quality and price of retail and online services. What price are we willing to pay to punish companies that were slow to comply with the law?

Attention TJ Maxx and Marshall's Shoppers!

If you made purchases or returned items at TJX Cos. such as T.J. Maxx, Marshalls, HomeGoods, A.J. Wright, Winners and HomeSense, you may be entitled to compensation.

Notices are just now beginning to go out to millions of customers who may have been affected by the largest data breach in history. Last year, TJX disclosed that information from nearly 46 million debit and credit cards was stolen by hackers, and that nearly a half million people who returned items without their receipts may have had personal data (such as driver's license numbers) stolen. Court filings by banks that are suing TJX indicate a much bigger breach, saying that more than 100 million cards may have been compromised.

The breach is believed to have begun in mid-2005 but wasn't detected until December 2006. The stolen information covers transactions dating as far back as December 2002.

Customers who believe their personal financial data was stolen or put at risk, and believe they were harmed, can join the class action lawsuit. They can send in a claim form to ask for benefits if they are eligble, ask to be excluded from the settlement (if they provide notice by June 24) or object to the terms.

Terms of the proposed settlement

TJX will offer vouchers to customers who show they shopped at TJX stores in the U.S., Canada and Puerto Rico — except Bob's Stores — during the breach and incurred costs.

TJX also will provide three years of credit monitoring and identity theft insurance to certain customers who returned merchandise without a receipt and were sent letters notifying them that their driver's license or other identification information may have been compromised.

For more information, call toll-free to 1-866-523-6770 or visit http://www.tjxsettlement.com/.

Experian Sues LifeLock

Experian is really mad at Todd Davis.

You may not know Todd Davis, but you probably have seen his Social Security number plastered all over magazines, newspapers, television - even wrapped around public buses. (457-55-5462)

Davis is the CEO of LifeLock, a company that focuses on identity theft prevention. Their advertising has been hugely successful, with 700,000 customers each paying $10 per month for the service.

The service essentially consists of continuous fraud alerts being placed on your credit report, to be renewed automatically every 90 days. LifeLock's services also include stopping junk mail and the mailing of pre-approved credit card offers, and a copy of their credit report. The company offers a $1 million guarantee that it will help restore customers’ credit reports if they suffer an identity theft.

Experian says that LifeLock's practices are costing them "millions of dollars." Some of this is due to the thousands of calls funneling through various phone banks from LifeLock, resulting in "excessive phone charges." And, since the credit bureaus make a lot of money by selling consumer data to potential creditors, fraud alerts drastically limit their revenue capabilities.

The Lawsuit

Experian contends that the placing of continuous fraud alerts is illegal - that the Fair Credit Reporting Act only allows the consumer or a person acting on behalf of the consumer to place fraud alerts - and that LifeLock is intentionally deceiving the bureaus by posing as customers.

Experian also says that the fraud alerts can only be placed when the consumer believes that fraudulent activities are imminent, and not just for anyone who wants one.

Pot, Meet Kettle

Experian is bent out of shape that LifeLock would charge consumers a fee to do what they can do legally for free. For example:

• You can call any of the Big 3 credit bureaus to request an initial fraud alert if you suspect that you have been, or are about to be, a victim of identity theft. Once the alert is in place, potential creditors must use "reasonable policies and procedures" to verify your identity before issuing credit in your name. You do not need to call each of the three credit bureaus - they are required to report this to the other bureaus.
• In addition, when you place an initial fraud alert on your credit report, you can order one free credit report from each of the three nationwide consumer reporting agencies. You also can request that only the last four digits of your Social Security number appear on your credit report. You also can order a free credit report from annualcreditreport.com.
• You can stop junk mail and remove yourself from pre-screened offers by visiting http://www.optoutprescreen.com/ or call toll-free to 1-888-567-8688. You can choose to opt-out of offers for five years or permanently. (You also can add yourself back onto the list.)

Experian really has no room to talk, having been the target of criticism that it charges customers for a service that is free through its freecreditreport.com site. The FTC has expressed concern that the site could be confused with annualcreditreport.com, which is the only site mandated by federal law that permits consumers to obtain a credit report for free each year.

With credit monitoring as the centerpiece of Experian's freecreditreport.com service, it's easy to see why Experian is attacking its new competitor.

The Truth Is....

Experian, no stranger to misleading and deceptive advertising, also claims that LifeLock is engaging in misrepresenting the effectiveness of its service. In one ad, LifeLock says, "You’ll find out how to lock down your identity, making it virtually impossible for identity thieves to wreak havoc on your good name."

Fraud alerts, however, don't prevent fraud from happening. It simply makes it harder for identity thieves to open up credit in your name. If an identity thief already has your credit card or Social Security number, a fraud alert won't stop the misuse of those items. Even Davis admitted in an interview that if an undocumented worker is using your Social Security number to obtain employment (a very common form of identity theft), there isn't much that LifeLock can do to stop it.

Is Your Grocer A Crook?

Beyond the legal issues Experian is jawing about, the hot issue seems to be whether LifeLock is a scam for charging consumers to do things they can do themselves for free, or if they simply are providing a convenience at a low monthly cost. LifeLock customers appear to be happy with the service. Yes, you can do these things for free. LifeLock clearly states this on their Web site. But every day, we pay for convenience. After all, you could grow your own food - does this make your grocer a crook?

More and more, people are finding that dealing with the Big 3 is a time-wasting hassle. If you don't want to pay for the service, you've now got the tools to do it yourself. If you want someone else to do it for you, $10 a month is not unreasonable.

One thing to be aware of: Experian states in its lawsuit that LifeLock uses annualcreditreport.com to order the customer's credit report. Customers who are unaware of this practice may try to use their once-a-year benefit and get turned down because LifeLock has already tapped the free report for the year.

It's Good to Have Limits

A couple of years ago, Federal Reserve researchers reviewed 310,000 individual consumer credit files. Among their findings: nearly half (46%) were missing at least one credit limit on their report.

For anyone who is concerned about improving or maintaining their credit score, this is bad news... because when companies like Capital One do not report credit limits to the credit reporting agencies (Equifax, Experian and TransUnion), your credit score can drop significantly.

The first question: How does this happen?

Part of your credit score -- 30% -- is determined by how you use your credit. If you tend to maintain balances at or close to your credit limit, your score will not be as high.

Credit reporting agencies use special software to calculate your credit utilization ratios. Credit utilization refers to how much of your available credit you are using. If a company does NOT report your card limit, the software may substitute your highest balance in place of your actual limit to calculate your ratio.

So, for example, if you have a credit card with a $5,000 credit limit, and the highest monthly balance you've ever had on the card is $2,500, you have a 50% utilization ratio. However, if your most recent balance is $2,000, and the credit card company doesn't report your $5,000 limit, the scoring software may use the highest monthly balance ($2,500) to determine your limit. That would make it appear as though you are nearly maxxed out with a credit utilization ratio of 80% - which could drop your score 20 to 50 points or more.

Recent data from Experian revealed that those with the highest credit scores used only, on average, 17.8% of their available credit.

The next question - Why do companies withhold credit limits?

The answer: Competition and the almighty dollar.

With the average American carrying four credit cards with balances of $9,000-$13,000, it's becoming increasingly difficult for lenders to gain new customers. As a result, they are trying to lure existing cardholders with offers of low balance transfers, cash rebates and more.

Companies like Capital One hope to reduce "poaching" of customers by their competitors, who routinely sift through national credit bureau data looking for prospective customers. The practice of withholding credit limits artificially lowers the credit scores of their customers, theoretically making them less attractive to other lenders. And it might mean that consumers using Capital One cards are paying higher interest rates on their other credit accounts. This makes it more likely that you will remain a captive customer of Capital One and less likely to be offered the credit you deserve from other companies.

Those hurt the most by this practice are consumers with few credit accounts and those just beginning to build their credit history.

Class action lawsuits have been initiated, accusing the Big Three of deliberately shielding data despite knowing that this practice reflects negatively on credit score calculations.

Until the lawsuit is settled, consumers would be wise to review their credit files to see which companies are not reporting accurate credit limit data, and to be cautious about using these cards.

Equifax Must Pay $2.9 Million for Destroying Woman's Credit

Yes, Virginia, there is a Santa Claus.

This year he will be visiting Angela, an Orlando woman, with an extra special gift - $2.9 million - from Equifax, one of the big three credit reporting agencies.

Angela, a medical transcription worker, tried for over a decade to have erroneous information deleted from her credit file. Seems Equifax repeatedly confused her credit information with that of a deadbeat who had a similar name. Despite her continued attempts to dispute the information in her credit report, Equifax kept passing along the wrong information.

This led to Angela's inability to get student loans, credit cards, and even ATM cards. She couldn't apply for a mortgage. She finally sued in 2003.

The jury apparently thought Equifax deserved more than just a slap on the hand. They decided that Equifax must pay her $219,000 in actual damages and $2.7 million in punitive damages for "negligent violation of federal credit-reporting laws." (Two other companies named in the suit - Experian and American Recovery Systems - opted to settle the case out of court.)

According to one expert who testified in the trial, "people have been victimized by the companies' streamlined, automated process of 'investigating' alleged credit-file errors... the process is set up to save money and boost profits rather than protect consumers."

I guess Santa will be giving Equifax a great big lump of coal this year.

Consumers Slam Debt Firms with Lawsuits

Not so very long ago, ruthless debt collectors used humiliating and harassing methods to try to squeeze payments out of consumers. Embarrassing post cards, abusive calls at all hours of the day and night, calls to the workplace, calls to friends and family members, and publicly published lists of debtors were among the tactics that collection agencies used to strongarm people into forking over money.

The Fair Debt Collection Practices Act, a statute added in 1978 as part of the Consumer Credit Protection Act to protect consumers from abusive, deceptive and unfair debt collection practices, is at the center of a wave of lawsuits by consumers that have been dragging debt collection lawyers into court for violating the law.

Among the reasons: mistakes in court filings made by those who purchase debt from creditors but frequently lack enough information to avoid making false statements in pleadings, and debt collectors that are filing cases with inaccurate information or filing after the debt's statute of limitations has expired.

There were more than 69,000 consumer complaints made to the FTC about debt collectors in 2006, which is more complaints than the FTC receives about any other specific industry. This was an overall increase of 3.8% over 2005.

How does this impact you - the consumer?

Recent court decisions in fair debt cases are causing a great deal of anxiety among debt collectors and creditors. Increasingly, debt-collection lawyers are relying on what's called the "bona fide error defense" - claims that the mistakes are unintentional and occurred in spite of the debt collector's best efforts to avoid them. But this defense is being successfully challenged in a number of cases. What exactly is a "bona fide error"? This remains unclear.

The National Law Journal reports that a recent federal court decision that denied litigation immunity to a debt-collection law firm creates more risk for debt-collection lawyers.

The FTC is currently examining the law, which hasn't had a major overhaul in its 30-year history, to see if it is out of step with industry developments. Stay tuned.