Fair Isaac Sues Credit Bureaus over Score Competition

Fair Isaac Corp. here has filed a lawsuit in the Federal District Court in this city against the three major credit repositories as well as VantageScore Solutions LLC alleging they violated antitrust laws and engaged in unfair competitive practices.

The issue at hand is whether VantageScore, a product designed by the three credit bureaus to standardize the scoring model inhibits the sale of FICO scores.

A statement from Fair Isaac claims that the three repositories could manipulate the credit score price, sales and distribution process to promote the VantageScore product over the FICO score or any other credit scoring product.

The credit reporting agencies, it said, sell and distribute FICO scores to lenders, own the consumer data on which the score is created and have the ability to set the price a lender pays for a FICO score and a VantageScore.

Tom Grudnowski, chief executive of Fair Isaac, said in the statement, "The three credit reporting agencies have been our primary U.S. distribution partners for Fair Isaac's scores for more than 15 years. Now, the credit agencies are using their position to drive adoption of their own score to the detriment of our competing FICO score product and in conflict with their obligations to distribute our product."

Another issue Fair Isaac is raising involves the use of a credit score product with a range that overlaps the trademarked FICO score range of 300 to 850, contending it is an attempt to profit from confusion caused by the similar score ranges, a trademark infringement and a violation of fair trade laws.

"Misleading and confusing marketing claims do not serve customers' best interests," Mr. Grudnowski said.

The VantageScore.com website notes that while the product uses a numerical score, its range is from 501 through 990.

John Padilla, vice president of business development at Zoot Enterprises Inc., Bozeman, Mont., noted his company is a "data agnostic" provider of services.

Among his concerns is that it was "a little unnerving" to see the bureaus work together to create VantageScore. He would have rather see each individual bureau develop its own product.

Marie Adams, executive vice president of Advantage Credit, Pensacola, Fla., echoed this sentiment. Fair Isaac has a good point regarding the collusion aspect of its complaint. It is "unusual for the bureaus to do something together," she noted.

Part of the motivation on either side of the argument is revenue. Mr. Padilla noted the bureaus write a big check to Fair Isaac in royalty payments, while Ms. Adams said Fair Isaac is seeing its revenue threatened by VantageScore.

But are they really being threatened? The answer is probably not. Neither Zoot Enterprises nor Advantage Credit is seeing large demand from mortgage originators for reports that use VantageScore.

Advantage Credit earlier this year ran some teleconferences for its broker clients featuring representatives from the bureaus to explain VantageScore, said its vice president of marketing Kelly Gontarski. But the brokers had a lot of questions and expressed a great deal of anxiety.

There are also questions about wholesale and secondary market investor acceptance of the product.

A statement from Atlanta-based Equifax said the suit is without merit and it plans to defend itself and VantageScore Solutions LLC, a firm to market the VantageScore product founded by the three repositories.

"We anticipated that Fair Isaac would consider litigation in an attempt to slow customer adoption of VantageScore.

"The creation of VantageScore is a direct result of customer demand for a more consistent, objective and better performing approach to credit scoring across all three national credit reporting companies.

"Contrary to Fair Isaac's claims, VantageScore in fact increases competition in the marketplace, and provides credit grantors and consumers with more choice, not less." (c) 2006 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com http://www.sourcemedia.com

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