In the US, maintaining a good credit score is crucial for financial stability. Good credit facilitates access to opportunities such as premium credit cards, loan options, and more favorable interest rates for consumers. Unfortunately, many Americans find themselves struggling with bad credit scores, which can be a major roadblock with far reaching consequences.
Several factors can contribute to the degradation of a consumer’s creditworthiness, including late or missed payments, excessive debt, bankruptcy, and even identity theft. Depending on the circumstances, an unfavorable credit score can happen to just about anyone and could take years to repair. So what options are out there for those who need to borrow money, but have a bad credit history?
First, we need to understand how credit scores work.
How are credit scores determined?
Credit scores are tied to a person's Social Security Number (SSN). When you apply for credit, such as a credit card, loan, or mortgage, the lender typically requests your SSN to access your credit history.
This unique identifier allows credit reporting agencies to compile and maintain a comprehensive record of an individual's borrowing and repayment habits. The credit reporting agencies, such as Experian, Equifax, and TransUnion, collect data from various sources, including banks, credit card companies, and other financial institutions, to serve as the basis for calculating credit scores.
When your SSN is tied to a bad credit score, only consistent and responsible financial management over time can improve it . If credit issues are complex or overwhelming, professional and reputable credit counselors or financial advisors can provide valuable guidance. Remember, there are no magic solutions or shortcuts to making bad credit disappear.
This is where shady credit repair companies and bad actors try to scam you. They promote schemes claiming to clean up credit and/or guarantee a high credit score in a short period of time – all for the low price of buying a Credit Privacy Number (CPN).
What is a Credit Privacy Number (CPN)?
CPNs are nine-digit numbers set up in the same format as a social security number (XXX-XX-XXXX). Some companies claim CPNs can be used in place of SSNs as a means to establish a new credit identity or protect your personal information. In truth, these companies find random SSNs, which are run through public databases to determine their status. If they’re clean— validated as an active SSN that is not on file with credit bureaus—they are offered for sale.
Are CPNs legal?
CPNs are not legitimate and their use for financial purposes is 100% illegal.
The Social Security Administration explicitly states that using a CPN in place of an SSN for financial purposes is unlawful. CPNs are not created or authorized by the government for credit-related activities. Therefore, anyone claiming to provide “legit CPNs” for financial purposes is likely engaging in deceptive, illicit practices.
The CPN is just the beginning for these scam artists, who will often try to sell more “services” to “help improve your credit” once a CPN purchase is made. Frank McKenna, Chief Fraud Strategist at Point Predictive and creator of Frank on Fraud, wrote about his experience buying a CPN and the various services the website advised that he purchase to further legitimize his “clean” CPN – which was likely the SSN of a 10-year-old that had never used credit.
To be clear, websites and credit repair companies promoting the use and/or sale of CPNs are fraudulent and can result in on or several of the following:
- Legal consequences: Using a CPN in an attempt to deceive lenders or conceal poor credit history can lead to severe legal repercussions, including fines and imprisonment.
- Credit reporting issues: Since CPNs lack a legal basis, credit bureaus may reject credit applications or flag accounts associated with CPNs. This can further complicate financial matters and potentially harm creditworthiness.
- Identity theft vulnerability: Companies offering CPNs may request personal information, potentially exposing individuals to identity theft risks. Sharing sensitive data with illegitimate sources can lead to financial losses and damage to one's credit history.
- Potential for illegal activity: Since companies offering CPNs use stolen or fake SSNs, the use of CPNs may also potentially facilitate illegal activity, such as Synthetic ID Fraud.
How does the use of CPNs impact payment providers?
Some of these risks mentioned above can carry over to financial institutions, due to their place in the payments industry. Banks, acquirers, and payment service providers are responsible for thoroughly vetting merchants to weed out bad actors and protect consumers.
In general, credit repair services are a highly regulated industry and there are several regulations in place to ensure payment service providers (PSPs) remain in compliance with the law. Partnering with credit repair merchants that engage in unethical or fraudulent practices can tarnish a brand’s reputation, result in legal issues, or cause financial repercussions. For instance, if a PSP processes payments for credit repair merchants and they are found to engage in illegal practices, the payment processor may be held responsible for chargebacks, refunds, or other liabilities.
How can PSPs manage the risks of CPNs?
It is imperative that financial institutions mitigate the risks associated with enabling transactions for credit repair merchants or others who may be offering the illegal sale of CPNs.
Take these 4 steps to manage and mitigate the potential risks involved with merchants and illegal CPNs:
- Due diligence when onboarding: Conduct thorough research and due diligence on merchants before partnering with them. Look for credible and reputable businesses that operate within legal boundaries and have a proven track record of success.
- Compliance verification: Ensure that merchants in your portfolio comply with all relevant laws and regulations, including those related to credit repair services. Regularly review their practices and procedures to confirm ongoing compliance.
- Risk monitoring on an ongoing basis: Implement robust risk monitoring and fraud prevention measures to quickly identify and address any potential issues. Continuously monitor chargeback rates, customer complaints, and regulatory changes.
- Regular auditing: Conduct regular audits of merchants in your portfolio to ensure they meet your business standards and comply with regulations. Address any discrepancies or concerns promptly and take appropriate actions to mitigate risks.
The EverC MerchantView solution helps detect activity like CPNs, to help banks, acquirers and payment providers avoid illegal operations, maintain compliance with regulations and card scheme guidelines, and protect consumers.
