Mortgage Daily

Published On: October 17, 2006

A lawsuit filed against the three major credit bureaus accuses the trio of using false and misleading claims to promote adoption of their own credit scoring product. But the lawsuit, which was anticipated, was without merit, the bureaus contend.

Credit reporting giant Fair Isaac Corp. filed suit last week in federal court in Minneapolis alleging that Equifax Inc., Experian Information Solutions Inc., TransUnion LLC and VantageScore Solutions, LLC, through their launch of the VantageScore credit score, are engaging in unfair and anticompetitive practices that will harm the FICO credit score brand.

“We have competed against the credit reporting agencies’ scoring products for many years, and we are happy to compete on a level playing field,” Tom Grudnowski, CEO of Fair Isaac, said in a written statement.

“However, the recent agreement between the three powerhouse agencies unfairly threatens our ability to compete, and inhibits the ability of consumers and lenders to enjoy the benefits of continued innovation, choice and competition in the credit information marketplace,” he continued.

But Equifax has a different take on the legal squabble. The Atlanta, Ga.-based company said it knew Fair Isaac would sue over the matter.

“Equifax believes that Fair Isaac’s lawsuit is without merit and the company plans to vigorously defend itself and VantageScore Solutions LLC,” a statement posted on its Web site said. “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,” Equifax added.

TransUnion echoed Equifax’s comments.

“TransUnion is proud of its involvement in the development of VantageScore and is not surprised that Fair Isaac is threatened by competition. TransUnion believes the legal action taken by Fair Isaac is without merit and we will aggressively defend this lawsuit,” the company responded via its Web site.

Currently, the credit reporting agencies sell and distribute FICO scores directly to lenders. The agencies also own the consumer data on which scores are created and they have the ability to set the price a lender pays for both a FICO score and the score now offered through jointly-owned VantageScore, Fair Issac has asserted.

Fair Isaac said it believes this situation allows the agencies to unfairly manipulate the credit score price, sales, and distribution process to promote adoption of their VantageScore product at the expense of competition from the FICO score or other credit scoring products.

“The three credit reporting agencies have been our primary U.S. distribution partners for Fair Isaac’s scores for more than 15 years,” Grudnowski said. “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.”

Fair Isaac contended in the complaint that the credit reporting agencies are using false and misleading marketing and advertising claims to promote adoption of the score offered through VantageScore. It also accuses them of mischaracterizing Fair Isaac’s credit scores.

The agencies’ marketing of a credit score product with a score range that overlaps the trademarked FICO score range of 300-850 is an unfair attempt to profit from confusion caused by the similar score ranges as well as trademark infringement and a violation of fair trade laws, Fair Issac asserted.

Grudnowski claimed that Fair Isaac’s legal action echoes concerns of prominent consumer advocates that the VantageScore is causing confusion for consumers seeking to understand their credit. “Misleading and confusing marketing claims do not serve consumers’ best interests,” Grudnowski said in the statement.

Once again, Equifax and TransUnion disputed Fair Isaac’s claims.

“Equifax has received extremely positive feedback from its customers who believe that VantageScore offers a more consistent and better performing scoring system that will be a great benefit to the credit system as well as to consumers.”

Declaring that VantageScore has been well received by its customers, TransUnion said, “VantageScore offers choice to a marketplace that has demanded more options. Customers have been telling us for years that in the area of scoring they want more predictive options to solve business issues. At the same time, consumers have become more actively engaged in managing their credit health. They want a score that is easy to understand and consistent. VantageScore delivers on all these fronts, filling the void in the marketplace for choice, clarity and consistency.”

In court documents, Fair Isaac has asked the three agencies and VantageScore to stop the allegedly anticompetitive activities outlined in the suit and to conduct business in a way that serves the best interests of the financial services industry and consumers.

A spokesman for Vantage Score said the company would not be issuing a comment on the litigation. Experian did not respond to calls for comment.

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