Introduction#
Senator Josh Hawley has initiated an investigation into Fair Isaac Corporation (FICO), focusing on the company's pricing practices for credit scores used in mortgage originations. This inquiry raises questions about competition in the credit score market.
Investigation Details#
Hawley, who leads the Senate Judiciary Crime Subcommittee, has requested ten specific documents from FICO regarding its pricing strategies. Additionally, he has reached out to the Federal Trade Commission (FTC) to explore whether FICO's pricing could be violating antitrust laws, which are designed to promote fair competition.
Concerns Over Competition#
Analysts from TD Cowen pointed out that the letters sent by Senator Hawley do not claim that FICO has broken any laws. Instead, they argue that FICO's high profitability indicates a lack of competition in the credit score market. The senator's correspondence suggests that FICO operates with a "state-supported monopoly" in the mortgage credit score sector.
The Role of the FHFA#
TD Cowen highlighted the Federal Housing Finance Agency (FHFA) as a key player in this situation. The FHFA has historically restricted the use of Vantage Score, a competing credit score, which has limited competition. Although the agency approved Vantage Score last year, it has yet to release the Loan Level Pricing Adjustment (LLPA) chart necessary for lenders to utilize this score.
Potential Outcomes#
The investigation could pressure the FHFA to publish the Vantage Score LLPA grid, which would allow for more competitive pricing in the market. Analysts believe that lenders may need to consider both FICO and Vantage Score credit scores to find the most cost-effective option, as the expense of obtaining both scores is relatively low compared to the potential savings they could offer.