FTC Cracks Down on Free Credit Reports That Aren't Free

The Federal Trade Commission announced Tuesday new disclosure rules for Web sites that advertise free credit reports but then quietly bill customers for "credit monitoring services." The new rule, crafted to enforce a law Congress passed in 2009, requires sites like FreeCreditReport.com to display a large yellow banner on their home pages directing consumers to a site where they can obtain an annual free credit report -- with no strings attached.

Though the trade commission has often regulated deceptive advertising on television and product packaging, the credit report disclosure rule marks the first time Congress has directly regulated advertising on the Internet. It is the result of bipartisan legislation overwhelmingly passed by both houses and signed by President Obama last year.

The Credit CARD Act also requires a disclosure message to appear in both the visual and audio portions of advertisements in other media, which means the singing pirates, singing bikers, and singing rockers on TV will have to add a few more lines to their ditties about the dangers of credit ignorance.

A 2003 amendment to the Fair Credit Reporting Act required all three national credit reporting agencies, Experian, Equifax, and TransUnion, to provide consumers one copy of their credit report per year. The three companies set up a jointly operated site -- AnnualCreditReport.com -- to comply with the law. But all three also operate independent sites that require users to hand over their credit card information and agree to a monthly service charge before giving them their bill-paying history.

FreeCreditReport.com, for example, owned by Experian, asks users for their Social Security number and credit card information to process their credit report. Tiny gray text on the right side of the screen explains that, in addition to requesting a credit report, you are signing up for a "free 7-day trial" of Experian's credit monitoring service. If you do not call and cancel the service within the 7-day period, you receive a $14.95 monthly charge on your credit card.

FreeCreditReport.com will be allowed to continue operating in its current form, but the required disclosure message will inform users that they are not on the site for their federally mandated annual credit report and provide a link to the correct site.

In more than 1,000 responses the commission received in response to a proposal for the rule, individual consumers, particularly those who had unwittingly paid various sums for unwanted services, overwhelmingly supported the regulation. Some citizens even recommended that the word "free" be banned from credit report advertisements. The Senate Permanent Subcommittee on Investigations, chaired by Sen. Carl Levin co-sponsor of the 2009 legislation, worked on the rule released by the FTC on Tuesday.