Consumers have always had a twisted relationship with the credit-reporting industry.
The three key national players - Experian, Equifax, and TransUnion - each maintain files on more than 200 million Americans. But their primary business has always been about us, not with us. And that has led to maddening, costly, and even financially harmful results - say, when they get something wrong in your records but don't seem to care much about fixing it.
Thankfully, the new Consumer Financial Protection Bureau has stepped into the breach, by trying to untangle this Gordian knot of commercial interests and lack of interest.
Its first step was to force the companies to behave better regarding those flawed credit files, consumers' most common complaint. But last week, CFPB director Richard Cordray announced what's likely to be an even more important step: He is urging credit-card issuers to provide customers with a free monthly update of their credit scores.
This may not seem like the boldest of moves, since Cordray was just "strongly encouraging" all card issuers to take a step a handful have already taken. Since the fall, for example, Discover, Barclays, and First National Bank of Omaha have offered free scores. Capital One said Friday that it planned to follow suit in the next few weeks.
But don't underestimate the disruptive potential of Cordray's nudge - an end run, in essence, around consumers' tangled relationship with the credit-reporting industry.
The basic problem is this: The credit agencies' main product is your personal data, but you aren't their main customer. Instead, as Cordray has said, "consumers can become largely incidental to a business relationship between others" - not just financial institutions, but insurers, employers, landlords, and others that use credit data in making decisions. As a result, the credit-reporting industry often seems more interested in profiting from consumers' problems than in fixing them.
Why will the free scores matter? Because they'll save many consumers a lot of money now wasted on credit monitoring, and help others avoid the hassle that comes when ID theft goes unnoticed and unchecked.
A bit of history helps. A decade ago, Congress required all consumer-data agencies to provide consumers with a free annual report, so they can monitor their own files. For the Big Three, reports are available at www.annualcreditreport.com.
But despite the urging of consumer advocates, the credit agencies balked at including a free annual credit score - the three-digit summation of their credit standing, popularized by Fair Isaac Corp.'s familiar FICO score - that had become crucial for enabling the "instant" or "easy" credit that had changed the marketplace since the 1980s.
Of course, the agencies were happy to sell scores to consumers who visited the free-annual-report website. And with the rash of identity theft in the last decade, they found a lucrative new niche: credit monitoring.
Equifax's "Personal Solutions" unit brought in $205 million in 2012 - about a tenth of its total revenue - with products such as its $22-a-month Equifax Complete Premier credit-monitoring service.
Each of the Big Three offers such services, though their stake is sometimes buried in the fine print. And every other company in the field also contributes to their revenue, because the business is all based on the same underlying information in consumers' credit files.
"The industry makes billions of dollars a year in revenue from credit scores, credit alerts, credit monitoring, and the like," says Odysseas Papadimitriou, founder of the CardHub.com and WalletHub.com personal-finance websites. "This is an absolute threat to that industry."
Cordray, of course, was much more understated, saying the proposal would help all card users stay alert for the red flags of identity theft. He says he hopes other financial firms follow.
The key point here is that the banks are already paying the credit agencies in order to keep tabs on your score, because their money is at stake.
Sharing the data with you makes total sense.