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Credit Monitoring Rip-Offs More Proof of the Need for Financial Literacy

Just as we wrote about the pressing need for financial literacy among consumers as credit tightens, The New York Times reports on the government’s efforts to combat those “free” credit report firms, which charge people for a service they are entitled to get for free.

On television it’s hard to miss the wildly popular band of slackers singing ruefully from a shabby apartment or while waiting tables in pirate regalia. The ruined credit that led to their financial misfortune might have been sparkling if only they’d tracked their status on freecreditreport.com.

The Federal Trade Commission is not amused. It has long believed that the company that owns freecreditreport.com is deliberately diverting people from a government-mandated site where consumers can get free credit reports by law, and using the reports as a lure for a $14.95 monthly service that alerts subscribers to important changes in their credit status.

The government even has put together a spoof video of those popular ads, with singers letting consumers know they can check their credit reports for free. But beyond the ads, the story explains, is the $1 billion credit monitoring industry, which allows consumers to check for real-time changes to their reports. With the exception of identity theft victims, few consumers have a need for that kind of monitoring. And if they do, they can check their credit themselves, without charge, several times a year.

The problem is that some consumers sign up unwittingly for these monitoring services, thinking they’re getting a one-time free credit score check, and finding themselves instead locked into a monthly fee as high as $30. And such services are peddled not just by those freecreditreport.com singers, but by the big three credit bureaus and major credit card companies.

The fact that consumers are signing up — and paying — for services they can get for free from the government tells you a lot about the state of financial literacy in this country. Our story mentioned car title dealers, payday lenders and other fringe banking services that cater mostly to low- and moderate-income consumers. But the Times story makes clear financial literacy knows no income boundaries, with consumers being tripped up by mainstream lenders as well. Magic Johnson isn’t the only celebrity endorsing predatory businesses, like Rent-A-Center. Former New York Times Sunday Business columnist Ben Stein got fired after doing commercials for a shady credit reporting company.

Good luck to the government trying to educate consumers about this. It won’t be easy. When I called up the New York Times piece to write this post, all kinds of ads for free credit scores and credit monitoring companies popped up on my screen. And as we mentioned, financial literacy efforts in this country often don’t come just from the government or other unbiased sources, but from corporations and lenders with a stake in the game.

Visa, for example, announced recently its goal of helping 20 million people worldwide with financial literacy skills, attracting some positive publicity for the effort. Wonder if the advice will include paying off your credit card balance in its entirety each month, or, better yet, avoiding the plastic altogether.

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