Fair Isaac Corporation (FICO) Raises Credit Fees for 2023
On November 22, 2022, the National Consumer Reporting Agency (NCRA) sent a letter to its members announcing that most mortgage lenders would see price increases from Fair Isaac Corporation (FICO) in 2023. Subsequently, FICO released a statement confirming that prior to September 1, 2022, it had informed the three credit reporting agencies (Equifax, Experian, and TransUnion) that it had adopted a new tier-based royalty structure for credit fees.
The NCRA explained that the new pricing would be based on the volume of FICO scores delivered to lenders, “with a wholesale price increase of less than 10% for the top tier of approximately 46 lenders, about 200% for approximately six lenders in the middle tier, and more than 400% for all other mortgage lenders in the nation.”
A similar royalty structure was already in place for auto loans, credit cards, personal loans, and other products, but FICO had historically charged each agency the exact same royalty (approximately 60 cents per score) in the mortgage market.
With the new royalty system, “FICO will now collect approximately 60 cents to approximately $2.75 per FICO Score,” the company said in a statement. “That means FICO will collect approximately $2-8 total for all three scores out of a $40 to $50 (or more) tri-merge report and score bundle, and out of an average $3,800 in closing costs. All amounts for the tri-merge report and score bundle above this $2-8 are collected by others. Accordingly, the total FICO increase for any given tri-merge report this year is no more than approximately $6, and for many, less.”
Mortgage applicants will be affected by the new pricing scheme as credit costs are typically passed on to the applicant in the form of a credit report fee. The disparity in fees has led to concern from industry trade groups, such as the Community Home Lenders of America (CHLA), which represents small and mid-sized lenders. The CHLA has called on the Federal Housing Finance Agency (FHFA) and the Federal Housing Administration to stop the hikes, proclaiming that “a pricing scheme where a few lenders receive small price increases, while prices are quadrupled for most lenders (and the borrowers they serve) is arbitrary and raises questions about whether it is a proxy for volume discounts or done for other unjustifiable reasons.”
In October of 2022, the FHFA approved VantageScore as another credit scoring system for mortgage originators, giving FICO its first actual competitor in decades. However, the regulator said that it would be a multiyear effort to get VantageScore 4.0 up and running.
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Zachary Pearlstein, JD, is a Regulatory Compliance Director with CLA's Mortgage Advisory Division. He joined CLA on January 1, 2014, as part of its acquisition of Bankers Advisory, Inc. Zachary oversees Mortgage Advisory's regulatory compliance team, which focuses on federal and state compliance, fair lending, and the Home Mortgage Disclosure Act (HMDA). He is a graduate of Brandeis University and earned his juris doctor at Suffolk University Law School. He is admitted to the Massachusetts Bar.
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