[Congressional Record (Bound Edition), Volume 155 (2009), Part 10]
[Senate]
[Pages 13934-13935]
[From the U.S. Government Publishing Office, www.gpo.gov]




                          DECEPTIVE MARKETING

  Mr. LEVIN. Mr. President, last month the Senate passed and the 
President signed H. R. 627, the Credit CARD Act of 2009. Thanks to the 
hard work of Senator Dodd, Senator Shelby, Representative Maloney, many 
other Members of Congress, and the multitude of fed-up citizens who 
protested unfair treatment by credit card companies, this landmark bill 
to protect consumers from abusive credit card practices was passed over 
the objections of powerful lobbies. Millions of Americans will benefit 
now that some balance of power is being restored between card holders 
and card issuers.
  Today, I want to thank Senator Dodd and Senator Shelby for including 
in the Credit CARD Act a provision that I authored and that was 
cosponsored by Senator Collins and Senator Menendez, to stop the 
deceptive marketing of free credit reports. I would also like to thank 
Senator Pryor for working with me to address his concerns about the 
provision.
  Credit reports are a record of an individual's history of receiving 
and repaying loans, and they frequently contain errors. At the same 
time, these credit reports are used to calculate the credit scores that 
have become so central to evaluating a person's creditworthiness. 
Credit scores are used to determine whether someone will qualify for a 
credit card, what interest rate they will get, and whether and when 
that rate will increase. Credit scores perform a similar function for 
home mortgages, car loans, and consumer lines of credit. Some companies 
use these scores to screen applicants for apartments, insurance, 
security clearances, and even jobs. The important role a credit score 
plays in our everyday lives makes it all the more critical that the 
reports used to calculate these scores are accurate and accessible to 
consumers.
  In the United States, three large nationwide credit reporting 
companies, often called ``credit bureaus,'' compile and maintain credit 
reports for the vast majority of consumers. Until Congress passed the 
Fair and Accurate Credit Transactions, FACT, Act of 2003, consumers had 
to pay a fee in order to access or attempt to correct the information 
in their credit reports.
  The FACT Act gave consumers the right to a free annual report from 
each of the nationwide consumer reporting companies. The FTC mandated 
the establishment of a website, AnnualCreditReport.com, to provide 
consumers access to their federally mandated free credit reports. In 
these difficult economic times, it is critical that consumers have a 
clear understanding of their right to get a free annual report, an easy 
way to obtain those reports, and the ability to correct any mistakes 
since mistakes in a credit report could cost someone a loan or a job.
  Today, however, television, radio, and the internet are awash in 
misleading advertisements for free credit reports. A cottage industry 
has sprung up of unscrupulous marketers who confuse or deceive 
consumers into buying products or services they may not need or want by 
tying the purchases to the offer of a so-called ``free credit report.'' 
Many of these marketers deliberately obscure the difference between the 
free reports to which consumers have a right under Federal law--which 
come with no strings attached--and the ``free reports'' that marketers 
condition on purchases of credit monitoring, credit scores, or other 
products.
  Deceptive advertisements direct consumers to contact commercial 
sources unaffiliated with the government-authorized 
AnnualCreditReport.com. Consumers who request ``free'' credit reports 
from these sources often find they have unwittingly signed up for 
credit monitoring or other services they must pay for. Some of these 
offers include notice that they are not affiliated with the federally 
mandated free report, and that consumers who accept the offer will 
either have to pay for another product or cancel a ``trial membership'' 
within a short time to avoid being charged. These disclaimers, however, 
are often buried in fine print or appear in places where most consumers 
won't see them. They simply are not adequate to correct the overall 
impression that the offer is for the free, no-strings-attached credit 
report available under federal law. Deceptive advertisements using free 
credit reports as bait are particularly destructive, because they take 
advantage of a consumer's general knowledge that free credit reports 
are available under law, and subvert the law's intent to protect 
consumers.
  The FTC has received hundreds of complaints from consumers who have 
been confused or deceived into paying for what they thought was their 
free report provided by law. The Better Business Bureau reports that 
just one prominent advertiser of free credit reports, 
FreeCreditReport.com, has been the subject of more than 9,600 
complaints over the last 36 months. FreeCreditReport.com requires a 
potential customer to provide a credit card number in order to 
establish an account and request a credit report. Many consumers assume 
this information is necessary for the company to identify the correct 
credit file, because why else would you have to provide a valid credit 
card to receive a free report? In fact, buried in the small print it is 
revealed that customers that request a free credit report must also opt 
out of a credit monitoring service or else they will be charged $15 a 
month, indefinitely.
  A 2007 study by Robert Mayer and Tyler Barrick of the University of 
Utah for Consumer Reports WebWatch analyzed 24 websites that market 
free credit reports and scores and revealed them to be rife with 
deceptive practices. Many of the websites studied had the word ``free'' 
in the domain name; others had names similar to the FTC-mandated 
AnnualCreditReport.com, such as NationalCreditReport.com. Of the 58 
sales pitches for credit reports or scores across the 24 websites 
analyzed, 41 pitches were for ``free'' reports or scores that in fact 
required purchase of a product or enrollment in a credit monitoring 
service. The study concluded that the ``enticement of free credit 
reports and free credit scores is an integral part of marketing credit-
related services.'' Interestingly, the study also revealed that of the 
24 websites analyzed, nine were owned by, or closely connected to, the 
nationwide bureau TransUnion, and eight were owned by or closely 
connected to the nationwide credit bureau Experian.

[[Page 13935]]

  The Federal Trade Commission has sued companies engaged in such 
misleading practices, but the deceptive advertisements have not 
stopped. Since 2005, for example, Experian has paid the government more 
than $1.2 million in settlements over deceptive marketing of ostensibly 
free credit reports through the website FreeCreditReport.com. And yet 
FreeCreditReport.com, through its seemingly ubiquitous advertisements, 
continues to deceptively peddle its product. At this very moment the 
Florida Attorney General's office has an active investigation into 
FreeCreditReport.com for ``Failure to adequately disclose negative 
option enrollment in credit monitoring with `Free' credit report, 
deceptive advertising, misleading domain name, and failure to honor 
cancellations.''
  Section 205 of the Credit CARD Act, which contains the Levin-Collins-
Menendez provision, will shore up the consumer protection in the FACT 
Act by requiring simple, honest disclosure in advertisements for 
``free'' credit reports. Mandatory disclosures will help ensure that 
consumers are given accurate information about how to obtain a free 
credit report with no strings attached. It is an effort to end the 
deceptive activities of companies that attempt to trick people into 
buying something that they are entitled by Federal law to receive for 
free.
  Section 205 directs the Federal Trade Commission to issue a rule by 
February 2010, to require companies advertising free credit reports to 
disclose the availability of the government-mandated free credit report 
in all mediums--internet, television, radio and print. Under the 
statute, the rulemaking must require that all television and radio ads 
for free credit reports include the disclaimer that ``This is not the 
free credit report provided for by federal law.'' The rulemaking will 
also require that all internet advertisers of free credit reports 
prominently display on the advertiser's homepage and possibly the 
advertisement itself that consumers can order the free credit reports 
provided for by federal law from www.AnnualCreditReport.com.
  Section 205 provides for FTC rulemaking to flesh out the disclosure 
requirements, such as what information should be provided, how it 
should be formatted, and where it should be displayed. This section 
will not achieve its purpose unless the mandated disclosure is made in 
a clear, prominent, and effective manner, a standard that disclosures 
in many current promotions do not achieve. The cleverly deemphasized 
disclosure currently on FreeCreditReport.com, for example, would not be 
sufficient.
  The success of a disclosure in alleviating confusion and deception 
depends critically on the manner in which it is presented. Even 
seemingly minor differences in language or presentation can make the 
difference between effective and ineffective disclosures. Section 205 
recognizes these challenges and the FTC's unique ability to meet them 
by giving the agency the authority to implement this new disclosure 
requirement by rule. I encourage the FTC to use consumer testing to 
identify the most effective disclosures and to design separate 
disclosure requirements for each type of medium: television, radio, 
internet, and print.
  Section 205 (b)(2)(B) states that, ``for advertisements on the 
Internet,'' the FTC rulemaking shall determine ``whether the disclosure 
required under section 612(g)(1) of the Fair Credit Reporting Act (as 
added by this section) shall appear on the advertisement or the website 
on which the free credit report is made available.'' I want to be 
perfectly clear, as the Senator who authored this provision and ensured 
its inclusion in the final bill, that this provision is intended to 
allow the FTC to require disclosure on an internet ad, on the website 
to which the ad is linked, on the ``home'' website of the company 
advertising ``free'' credit reports, or on any combination of the 
three. In my view, most forms of internet advertising, such as banner 
ads and paid search engine links promising free credit reports, should 
include disclosures. It will be up to the FTC to determine the nature 
and extent of the disclosure on each form of internet advertising.
  The goal of section 205 is to eliminate consumer confusion and 
deception by preventing commercial promotions from posing as the 
Federal free annual report program, and by ensuring that consumers know 
how to get their truly free annual reports. Although this provision 
does not prohibit the marketing of ``free credit reports'' per se, 
nothing in this section is intended to limit the FTC's authority under 
Section 5 of the FTC Act to prohibit unfair or deceptive practices in 
or affecting commerce, or its authority under the FACT Act to 
promulgate regulations regarding the centralized source for free credit 
reports. In fact, I hope the FTC utilizes all of its authority to end 
the deceptive marketing of free credit reports.
  Today, deceptive marketing of ``free'' credit reports is big 
business. Ads appear on television, the internet, and other media. One 
of the leading advertisers of ostensibly free credit reports that are, 
in fact, linked to paid services is Experian, which vigorously opposed 
the disclosure requirements in Section 205. Despite its best efforts to 
sugarcoat its marketing practices, Experian acknowledged that if it 
were required in its advertising to inform potential customers of their 
legal right to get a no-strings-attached free credit report, it would 
have a harder time selling a ``free'' credit report that also requires 
consumers to sign up for credit monitoring at $15 per month.
  Experian spends tens of millions of dollars advertising 
FreeCreditReport.com, dwarfing government efforts to publicize the 
availability of free credit reports at AnnualCreditReport.com and 
effectively undermining the intent of the free credit report provision 
of the FACT Act. So it is no surprise that Experian defended its 
marketing practices with aggressive lobbying. I am confident that the 
FTC will stand up to that kind of pressure and issue strong pro-
consumer regulations by the February 2010 deadline in the law.
  If, however, the FTC has not issued final rules by the statutory 
deadline, Section 205 requires an interim disclosure, ``Free credit 
reports are available under Federal law at: AnnualCreditReport.com,'' 
to be included in any advertisement for free credit reports in any 
medium. That interim disclosure is intended to be required in all ads 
from February 2010, until the FTC rulemaking is finalized.
  As chairman of the Permanent Subcommittee on Investigations, I have 
spent the last 4 years working to expose industry-wide credit card 
abuses. In 2007, my subcommittee held hearings which brought before the 
Senate not only consumers victimized by unfair practices, but also the 
credit card CEOs who approved those practices. In many cases, the card 
issuers that engaged in these practices relied upon information in a 
credit report.
  Section 205 of the Credit CARD Act will help prevent the subversion 
of a key consumer protection. Again, I thank my colleagues for enacting 
Section 205 into law.

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