When it comes to a person’s credit score, there’s only one number that really matters: their FICO score. But it appears that the Department of Justice may not be entirely comfortable with that arrangement.
FICO announced Monday that the DOJ’s Antitrust Division has opened a civil investigation into “potential exclusionary conduct” by FICO.
In simple terms, exclusionary conduct is activity or conduct that leads to market dominance in a particular area.
Now, the DOJ is looking into FICO’s dominance in the credit score market.
The DOJ does not comment on open investigations, and the information provided by FICO does not specify what area of the lending and credit ecosystem the DOJ is investigating, but FICO is certainly the dominant credit score in mortgage lending.
For years, Fannie Mae and Freddie Mac have used an older FICO credit score model, referred to as the “classic FICO” model in mortgage underwriting. That structure means that both newer FICO models and competitors’ models are not used in much of mortgage underwriting.
Chief among those competitors is VantageScore.
VantageScore Solutions, the developer of the VantageScore credit scoring model, is a joint venture between the nation’s three largest credit bureaus, Equifax, Experian and Transunion. In recent years, VantageScore, with the backing of the Big 3, has pushed for the GSEs to explore alternatives to the classic FICO model.
It looked as though the FICO monopoly in mortgage underwriting may continue for many years, especially when the Federal Housing Finance Agency announced new rules late in 2018 that would have prohibited the GSEs from using the VantageScore credit scoring model because of conflicts of interest with the company’s backers.
But that all changed last year when the FHFA flip-flopped and said that the GSEs could consider VantageScore as a FICO alternative. Although it should be noted that the FHFA established a timeline for adopting a new credit scoring model and it’s likely a matter of years before any substantive change goes into effect.
Again, it’s not known which area of FICO’s business the DOJ is looking into, but FICO said that it believes it has done nothing wrong.
“FICO intends to fully cooperate with the Department of Justice and looks forward to a constructive dialogue about the state of competition in our industry,” the company said in a statement.
“Lenders have multiple choices of analytic models to use in credit decisioning and are free to choose the credit score that works best for them,” the company continued.
“In a competitive marketplace, the FICO Score is chosen because it is trusted to be independent, predictive and reliable, and because FICO is constantly innovating to enable lenders to responsibly extend access to credit,” the company said. “FICO has also earned the trust of consumers through programs like the FICO Score Open Access initiative, which provides customers from more than 200 financial institutions with free access to the FICO Scores used to manage their credit accounts.”
FICO’s statement also indicates that Transunion may be involved in the investigation somehow.
“FICO is confident the Department will conclude that it has not engaged in any exclusionary conduct,” FICO said. “To the extent the Department’s inquiry was initiated based on TransUnion’s antitrust claims in the parties’ ongoing private litigation – claims TransUnion made only after FICO filed its lawsuit to recover millions in unpaid royalties from TransUnion – we are equally confident the Department will find them to be without merit.”
As Politico notes, TransUnion and FICO are already involved in antitrust litigation.
In 2006, Experian, Equifax and TransUnion introduced their own credit scoring model, known as VantageScore. Fair Isaac sued the three agencies for antitrust violations, but a court later dismissed those allegations. A federal jury later sided with VantageScore that it didn’t violate Fair Isaac’s trademarks or engage in unfair competition.
Fair Isaac also sued TransUnion in 2017 for breach of contract, copyright infringement and other allegations. TransUnion countersued Fair Isaac for antitrust violations. A Chicago federal judge ruled last year that TransUnion can move forward with its antitrust allegations.
When contacted by HousingWire, Transunion said that it is not commenting on the DOJ’s investigation.
“We will cooperate with the government as required,” Transunion said via a spokesperson. “We have no comment on the Department of Justice’s independent investigation into FICO.”