[author: John L. Culhane, Jr.]

As a follow up to its July 2011 report on credit scores, the CFPB released the results of its study analyzing the differences between credit scores sold to creditors and those sold to consumers. Dodd-Frank required the CFPB to study those differences and whether they disadvantage consumers.

The CFPB found that the credit score received by one out five consumers is likely to be “meaningfully different” than the score a creditor would receive for that consumer. A “meaningfully different” credit score received by a creditor is a score that would likely result in the consumer qualifying for better or worse credit terms than the consumer would expect to get based on the score he or she purchased.

The study states that score discrepancies can harm consumers by causing them to waste time in applying for credit they are not qualified for or to accept offers on less favorable terms than they might qualify for. The CFPB speculates that some lenders may benefit, not because they have done anything improper, but because consumers may not realize that they could qualify for better terms from other lenders.

The study finds that consumers are unlikely to be aware of the possibility that a score discrepancy may occur. The CFPB wants sellers of “educational scores” to “ensure that the potential for score differences is clear to consumers.” (The term “educational scores” is used by the CFPB to refer to the scores sold to consumers by consumer reporting agencies that are generated by proprietary generic scoring models.) According to the CFPB, consumers obtaining such scores “may be confused about the usefulness of the score being sold if sellers of scores do not make it clear to consumers before the consumer purchases the educational score that it is not the score the lender is likely to use.”

In its press release announcing the study, the CFPB stated that it will begin supervising consumer reporting agencies as of September 30. Earlier this month, the CFPB released its examination procedures for credit bureaus and consumer reporting agencies. Those procedures make clear that the federal consumer financial laws as to which CFPB examiners will be assessing credit bureaus and consumer reporting agencies for compliance will include the provisions of  Dodd-Frank that prohibit unfair, deceptive and abusive acts and practices. In view of the CFPB’s statements in the study about consumer confusion,  we expect CFPB examiners will be taking a close look at credit score marketing when conducting a UDAAP assessment.