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DoJ investigating FICO for potential antitrust violations

FICO has also been involved in other antitrust litigation against credit reporting bureaus

Summary

The Department of Justice is looking into FICO for potential antitrust violations. But the credit scoring firm says lenders are free to choose any credit scoring model in a free marketplace.

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The Department of Justice is looking into credit scoring firm Fair Isaac Corp. for potential antitrust violations.

The credit scoring agency looms large in the credit reporting industry, providing the model for the FICO scores that form the basis for most lenders’ decisions to grant credit to Americans.

The scope of the investigation is not clear, based on input from an anonymous source in a report by Politico. According to that report, the DoJ recently asked FICO and other participants in the consumer credit market to preserve their documents, which is usually the first process of an investigation.

In a March 15 news release, FICO stated the DoJ’s antitrust division has opened a civil investigation into “potential exclusionary conduct” by FICO. The credit scoring company added that it will cooperate with the DoJ and “looks forward to a constructive dialogue about the state of competition in our industry.”

According to FICO, lenders are free to choose any credit scoring model in a free marketplace. They go with the FICO score because it is reliable and independent.

Responding to a query from CreditCards.com, the Department of Justice declined to comment on this matter.

See related: How FICO’s new credit score changes will affect you

FICO involved in other antitrust action

FICO stated that if the DoJ investigation is based on private litigation it has ongoing with the credit bureau TransUnion, the company expects that those claims will be found to lack substance. According to FICO, TransUnion initiated that litigation after FICO filed a suit to recover “millions in unpaid royalties” from TransUnion.

Fair Isaac has also filed a lawsuit against the three credit reporting bureaus for antitrust violations in the past. Experian, TransUnion and Equifax introduced their own credit scoring system called VantageScore in 2006, and Fair Isaac saw this as an antitrust and trademark violation. FICO did not prevail in the lawsuit, though.

Responding to a query for comment about the DoJ’s current investigation of FICO, a VantageScore spokesperson said that it is the company’s policy not to comment on “these types of matters.”

TransUnion, Equifax and Experian did not respond to requests for comment on this matter.

See related: CFPB lawsuit alleges Fifth Third opened unauthorized credit card accounts

No immediate impact while investigation goes on

CreditCards.com industry analyst Ted Rossman doesn’t see any notable changes from the investigation in the “foreseeable future” considering that the DoJ investigation will last a while.

“The biggest potential effects are in mortgages, since right now FICO is the only credit scoring model accredited by Fannie Mae and Freddie Mac,” he said. “There’s already an initiative to potentially include VantageScore as well or instead of FICO, but that’s going to play out over an extended period (likely 1-2 years).”

There is legislation pending that attempts to make the credit reporting industry more accountable, considering that it plays such a large role in the life of American consumers.

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