Lenders look at credit reports to determine what interest rate you pay on something. But lately, companies like cell phone providers and cable companies are also using that information to set fees and prices. It’s called "risk-based pricing", and companies are required to notify customers when they use it.
Recently, the cell phone provider Sprint settled with the Federal Trade Commission for almost $3 million on charges it violated the Fair Credit Reporting Act by not providing the proper information to customers about charging such fees.
“This is our second risk-based pricing rule case in less than two years. Each time, we’ve imposed substantial penalties,” said Matthew Wilshire, a staff lawyer for the FTC.
Sprint didn’t admit any wrongdoing in the case, which involved notifications to sub-prime customers being charged an extra $7.99 a month. In a statement, the company pointed out that "The FTC agreed that we were including almost all of the relevant information ... but requested that we modify the format of the letter."
The FTC's Wilshire said companies using this type of pricing have to tell you why.
“[The notice] should include information about where they got your credit score from and why your credit score might have been lower than it otherwise would be,” he said.
That notice can tip consumers off to check their credit report, or allow them to shop around for a better plan.
“Years and years ago, a credit report was used to make a yes/no decision: 'Yes, we’ll give you an account. No, we can’t,'" he said. "Now, more and more, consumers pay based on their credit score and everybody might pay a different amount. I think it’s very common that consumers with sub-prime credit might be charged more.”
But sometimes credit reports and scores can be misleading and riddled with errors. Pamela Banks, from Consumers Union, said when companies don’t fully explain things, customers just see a higher bill.
“And so consumers are faced with these charges," she said, "but, unfortunately, they don’t even know it’s happening.”
Banks and the FTC say people should read the fine print on contracts and check bills carefully. If there’s a fee you don’t understand — ask the company to explain it, or complain to its regulator.