Senator urges DOJ to investigate FICO over increasing costs to mortgage lenders

U.S. Sen. Josh Hawley (R-Mo.) has sent a letter to the U.S. Department of Justice‘s Antitrust Division, urging an investigation of Fair Isaac Corp. (FICO), the company that retains the rights to the mortgage market’s adopted methodology to measure consumer credit risk.

The letter, dated March 12 and addressed to assistant attorney general Jonathan Kanter, states that FICO “appears to be using its monopolistic power over the credit scoring market to increase costs for mortgage lenders – an increase that will be passed on to consumers.” Hawley demanded that the DOJ “investigate the company for these anticompetitive practices.”

Representatives at the DOJ did not reply to requests for comment.

Julie May, vice president and general manager of B2B Scores at FICO, said that in the mortgage space, the company charges “$3.50 per FICO score, and that constitutes less than two-tenths of 1% of the average closing costs of $6,000 per mortgage and is 15% or less of the average cost of a $70 tri-merge credit report.” 

“If you end up pulling three scores in a tri-merge report, it’s $10.50. That is our price,” May said in an interview with HousingWire. “We do not set the price to the end customer that uses the FICO score; we actually license our models.”  

Hawley’s move follows a December report showing that FICO would start charging one price to all mortgage lenders that access credit reports, regardless of their sales volumes. This was a departure from the tier-based structure implemented the prior year. FICO also began collecting the same per-score price for soft and hard pulls.

“For 2024, FICO is once again increasing the price to access its scores, including both ‘hard’ and ‘soft’ pulls. It did the same thing last year, bumping prices as much as 400%,” Hawley said. “In total, FICO’s actions over the last two years have increased the cost of its credit scores by 500%. During the same period, FICO’s stock price has more than doubled.”

Hawley said that credit report “cost increases will be borne by homebuyers who are already facing the worst housing market in the country’s history.”

“FICO’s price increases will lead to either higher upfront costs or higher interest rates for borrowers, especially lower-income borrowers who may take longer to purchase a home,” he said. “This is, in short, a company abusing its market power to pad its bottom line and make life worse for Americans.” 

In response, May explained that the FICO score was first available in the market in 1989. After two years, it started being used by the three major credit reporting agencies — Experian, Equifax and TransUnion. In 2012, the parties started to renegotiate their license agreement since FICO royalties had been flat for three decades. 

The royalties increased to $0.50 to 0.60 per FICO score in 2018. A tier-based structure of $0.60 to $2.75 per score was implemented in 2022. After complaints from mortgage lenders, FICO returned to a fixed royalty of $3.50 per FICO score in 2023.

May added that different players use credit scores multiple times when originating a mortgage, but the royalty is charged only once. In addition, May said that approximately 99% of FICO scores accessed across the consumer credit industry are used for purposes other than mortgage originations. 

Changes in credit report costs may result in lawsuits against the company. Attorneys at Bronstein, Gewirtz & Grossman LLC, a firm that represents investors in securities fraud class actions and shareholder derivative suits, announced Thursday that they are investigating potential claims against FICO since its stock price fell by 6.23% to $82.77 per share after Hawley’s letter was made public.

Hawley said in the letter that FICO is a “for-profit company operated under a sweetheart deal from the federal government” as its credit scores are required by entities such as the Federal Housing Administration (FHA) and the U.S. Department of Veteran Affairs (VA). It results in FICO having a 90% market share in the business-to-business credit scoring market, he said.

Another federal entity currently requiring the Classic FICO score, the Federal Housing Finance Agency (FHFA), said in February that the transition to Fannie Mae and Freddie Mac acquisitions of single-family mortgages based on the alternative FICO 10T and VantageScore 4.0 credit models — replacing the model that has been in place for a decade — is expected to occur in the fourth quarter of 2025.

The government-sponsored enterprises (GSEs) will also transition from a tri-merge system to a bi-merge system at that time. The GSEs aim to accelerate the publication of VantageScore 4.0 historical data, starting in Q3 2024 rather than Q1 2025. But they are still working alongside the FHFA to achieve conditions for acquiring and publishing FICO 10T model data.

Although changes to credit requirements are on the way, May said that FICO competes “vigorously in all markets,” and its FICO 10T product has already covered more than $100 billion in mortgage originations in the nonconforming market. 

In a blog post on March 15, FICO CEO Will Lansing added: “Even within the mortgage market, lenders originate nearly 30% of all mortgages outside the Fannie Mae and Freddie Mac programs but still choose to use FICO Scores for those mortgages.”  

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