|
BoostMyScore.NET Questions Legality of FICO 08
By Alton Gary Simpson
DENVER - According to BoostMyScore.NET here the Fair Isaac Corp.'s new credit scoring model is illegal under the Equal Credit Opportunity Act because it will disregard authorized user accounts when determining a consumer's credit score. Authorized users has become one of the hot button issues for lenders, with the rival VantageScore model already disregarding them.
FICO designs and implements the most widespread personal credit scoring model used by the three major credit reporting agencies, Equifax, Experian, and TransUnion. BoostMyScore.NET offers credit piggybacking services that allow a person to be added as an authorized user to a high limit, low balance credit card account, which boosts their credit score. Authorized user accounts were originally intended to provide parents with the ability to add their children to their accounts.
A press release from BoostMyScore.NET cites Sec. 202.6, "Rules Concerning Evaluation of Applications" of ECOA: (6) Credit history. To the extent that a creditor considers credit history in evaluating the creditworthiness of similarly qualified applicants for a similar type and amount of credit, in evaluating an applicant's creditworthiness a creditor shall consider: (i) The credit history, when available, of accounts designated as accounts that the applicant and the applicant's spouse are permitted to use or for which both are contractually liable; (ii) On the applicant's request, any information the applicant may present that tends to indicate that the credit history being considered by the creditor does not accurately reflect the applicant's creditworthiness.
Bill Airy, principal of BoostMyScore.NET noted that this language clearly allows the use of authorized user accounts in making lending determinations because "any account which an applicant is permitted to use must be considered." He said that any lender that utilizes FICO 08 as it is currently proposed might leave themselves open to class action litigation for violating ECOA. He added that the proposed changes in FICO 08 might affect the credit scores of as many as 41 million people.
Unsurprisingly, FICO isn't buying that argument. The company regards credit piggybacking as misrepresentation and fraud. When discussing the practice, Craig Watts, senior public relations manager, FICO said, "They found wiggle room in the law." He explained that credit piggybacking is legal because of a loophole in the law, but that the practice essentially allows people to misrepresent someone else's credit history as their own in order to obtain a loan. He noted that in light of the meltdown in the subprime mortgage market, increasing attention is being paid to misrepresentation on the part of borrowers and that FICO 08 is in part an attempt to address that concern. "It is not something that we wanted to do," said Mr. Watts, adding that the company didn't see itself as having much choice in light of what he called "credit piggybacking scams."
As for the legality of FICO 08 under ECOA he said that the company works closely with regulators and, "No federal regulator has said anything to us that what we're doing with our scoring model is in any way out of line." Mr. Watts said that the credit reporting agencies should begin transitioning to FICO 08 in May of this year.
Mr. Airy stated that regardless of how the legal wrangling over authorized user accounts turns out, BoostMyScore.NET is ready with strategies to bypass the FICO 08 model. One such strategy would allow consumers to purchase primary accountholder positions on seasoned credit card accounts as a way of boosting their credit scores. He emphasized that this practice is legal and that the original primary accountholder is removed from the account before the new primary accountholder is added.
The Federal Trade Commission, which is tasked with enforcing ECOA has not taken a position on the legality of either FICO '08 or authorized user accounts. According to Frank Dorman, public affairs specialist, FTC, the agency doesn't opine on business practices, but he added, "We advise consumers that anything that makes their credit look better than it actually is may not be in their best interests."
More subprime news
| 
