Rift with Bureau Could Hold Up FICO 08 Rollout

By Jalili, H. Michael | American Banker, November 2, 2007 | Go to article overview

Rift with Bureau Could Hold Up FICO 08 Rollout


Jalili, H. Michael, American Banker


An impasse between Fair Isaac Corp. and one of the three major credit bureaus threatens to stymie the rollout of the newest version of the FICO score - and, possibly, the eradication of the controversial practice of credit "renting."

Equifax Inc. says it will not offer FICO 08, the fifth release of the market's predominant credit score, to lenders, or do any of the preparation work, at least until litigation between Fair Isaac and the three bureaus is resolved. The other two big bureaus, Experian Information Solutions Inc. and TransUnion LLC, are getting ready to offer the new version, which Fair Isaac had hoped would be available through all three by early next year.

"Until that lawsuit is resolved, our relationship with Fair Isaac is strained," Paul J. Springman, Equifax's chief marketing officer, said last week. "Whenever we take care of the lawsuit, then we decide what to do with FICO 08."

A key feature of the new version of FICO is that unlike earlier ones, it does not take into consideration credit card accounts for which the person being scored is an authorized user. In recent years a cottage industry has sprung up of Web sites that arrange for subprime consumers to boost their scores by becoming authorized users on accounts held by strangers with better credit. The inflated scores help the consumers get loans they would not have qualified for otherwise; the people "renting" out their creditworthiness get a fee, of which the intermediary gets a cut.

"This is a problem that our members have been talking about for well over a year," said Corey Carlisle, the senior director of government affairs and residential loan policy at the Mortgage Bankers Association. "The exploitation of this authorized user account ... caused the job of underwriting to be that much more complicated."

Some credit-renting companies have even advertised themselves to lenders as a means to increase the score of applicants and qualify them for loans, Mr. Carlisle said. The trade group is "very pleased that" Fair Isaac "made the change."

Equifax, however, points out that VantageScore, an alternative to FICO scores offered by a joint venture of the three bureaus since last year, has never considered authorized-user accounts and thus offers another way to protect against getting manipulated scores. "VantageScore excludes the authorized user, which is what lenders are interested in," Mr. Springman said.

Tom Quinn, Fair Isaac's vice president of global scoring, would not discuss Equifax's refusal to promote FICO 08. His company is "working with two of the three bureaus to get it implemented," he said.

But Fair Isaac acknowledges that the distribution of FICO 08 depends on the lenders' demand and on bureaus' desire to promote it. "The work has been done on our part," said Craig Watts, a spokesman for the Minneapolis company. …

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