Marketing Gimmick of Free Credit Reports Costs Consumers

In the past few months massive changes to credit card legislation have been implemented in an effort to protect consumers from the historically unregulated practices of the credit card industry. These regulations have caused a shift in how credit is gained, earned and managed on all ends.  The bottom line is that consumers have to pay better attention to spending to avoid debt and lenders have to be reasonable, ethical and upfront about fees, charges and changes to credit card agreements.

It is unfortunate that it took legislative reform to get the credit conditions headed in the right direction.  What is equally unfortunate is the moprofits that have been made by companies offering to provide free credit reports only to charge consumers for services rendered.  This specific practice resulted in yet another law that took effect on April 2nd 2010 to protect consumers from agencies charging for free credit reports.   Credit reports and credit cards go hand in hand, or at least they should. Credit reports are the one accurate measure of how a person is viewed financially to the lending world.  It has been law since 2003 that all consumers have a right to a free credit report at least once a year.

The Marketing Gimmick

Credit card companies have used marketing gimmicks just like most other companies that offer goods and services, including credit reporting agencies.  One particular marketing gimmick used by so-called “free credit report” companies has proven to be very costly for consumers.   There is a huge market for credit reporting and credit monitoring services and the supposedly “free” credit report hook has proven to be very lucrative.  The truth is that this free credit report is really not free and signing up to get it usually comes with expensive consequences down the line, often with unidentified charges and fees.  Consumers unsuspectingly provide their card number to the company for another reason and get charged for the free report.  These companies are advertising and then charging consumers for something that is supposed to be a free service.  Federal law mandates that each consumer is entitled to one free credit report each year.

The Law

In 2003 a law was passed that required credit bureaus to provide consumers with free annual access to their credit report.  Why pay for a credit report that is already available to you for free?  What happened here is what happens with most scams.  Someone was savvy enough to find a way around the law or simply disregarded that it existed. The unknowing consumer readily agrees to provide a credit card number for the free report that they are promised and later on down the line someone charges that card for credit monitoring services rendered.  Consumers educated on the law and their rights probably avoided scams and access charges, but unfortunately, those who are really informed about the law are in the minority.

From 2003 to April 2010 many consumers got scammed and lost money as a result of these automatic charges for what should have simply been a free service.  Over the years this resulted in an innumerable amount of onsumer complaints that took up law makers time and taxpayers money to  respond  to the issues of charges relating to unauthorized credit card charges.  All this time and energy was spent for something that is already a free service.

New Regulations

The April 2nd 2010 new law includes the following protections for consumer to avoid them falling victim to charges for what is advertised to free services:

• The right of the Federal Trade Commission to monitory without notice marketing practices that may be misleading.

• A delay in advertising or upgrade opportunities offered to consumers through AnnualCreditReport.com until after they have completed their information request, eliminating the misinterpretation of free. 

• Automatic links on all websites that offer free credit reports to the Federal Trade Commission and to the AnnualCreditReport.com website.

• Information that clearly informs consumers before they agree to purchase a credit report that they are entitled to an annual free report and the method in which to obtain their report.

Taking advantage of free credit reports is not a negative thing, nor is it always a scam.  Using free credit reports wisely and with caution can be a benefit to credit card holders. Remembering to avoid giving your credit card number for free services and to always determine a company is legitimate before working with them is the best way to avoid unauthorized charges.

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Tagged as: credit report, fraud