Credit Unions Sue FICO for Alleged Antitrust Violations
Lawsuits claim FICO unlawfully maintained a monopoly over B2B Credit Score Market that harmed businesses and led to higher prices.
Three credit unions are suing the Fair Isaac Corporation, claiming the company that created the ubiquitous FICO score has been leveraging its monopolistic power since 2006 to suppress competition, which harmed businesses and led to higher prices.
The $130 million Sky Federal Credit Union in Livingston, Mont., filed the first antitrust lawsuit in U.S. District Court in Chicago on April 2. Similar lawsuits were filed by the $48.2 million First Choice Federal Credit Union in New Castle, Pa., and the $46 million Alcoa Community Credit Union in Benton, Ark., on April 23 and April 27, respectively. Although these cases were filed separately, they are likely to be consolidated into a class action lawsuit if approved by a federal judge.
The credit unions claimed FICO has unlawfully maintained a 90% monopoly of the B2B Credit Score Market for many years, allegedly the violation of federal and state antitrust laws.
To illustrate the scope of FICO’s market dominance, Sky’s lawsuit noted that 10 billion FICO scores are sold every year, which is four times the number of hamburgers McDonald’s sells worldwide annually. What’s more, with 27.4 million FICO scores sold daily, it is more than twice the number of cups of coffee Starbucks sells around the world every day.
“Fair Isaac’s anticompetitive and exclusionary conduct has harmed businesses that have been deprived of competitive pricing for instruments to allow them to gauge credit risk and have had their freedom of choice restricted,” the lawsuit read. “Opening the market to competition is essential to competitive pricing and product innovation, including scoring the tens of millions of creditworthy Americans who have been denied access to credit.”
To preserve its monopoly, the credit unions claimed that FICO engaged in a pattern of anticompetitive conduct for more than 10 years against VantageScore, a credit score product launched by the three credit bureaus in 2006.
FICO allegedly abused its monopoly power to prevent the credit bureaus from successfully marketing and selling a competitive alternative to FICO scores via a disparaging public relations and advertising campaign to create uncertainty and doubt about VantageScore’s viability and reliability with lenders and consumers.
What’s more, the credit bureaus (TransUnion, Experian and Equifax) allegedly acted as Fair Isaac’s agents and co-conspirators to broker sales between businesses and Fair Isaac, according to the lawsuit, which is not suing the credit bureaus.
The credit unions claimed FICO placed anticompetitive restrictions on the credit bureaus’ ability to develop or distribute competitive credit scores, prohibited the credit bureaus from negotiating royalty prices for access to FICO scores, charged discriminatory and prohibitively high royalty prices and increased the royalty prices that must be paid by the credit bureaus.
Nevertheless, the credit bureaus did agree to these restrictions, according to the lawsuit.
These lawsuits followed a March 13 FICO statement after it was notified that the U.S. Department of Justice’s antitrust division opened a civil investigation into “potential exclusionary conduct by FICO.”
FICO said it intends to fully cooperate with the DOJ.
“Lenders have multiple choices of analytic models to use in credit [decisioning] and are free to choose the credit score that works best for them. In a competitive marketplace, the FICO score is chosen because it is trusted to be independent, predictive and reliable, and because FICO is constantly innovating to enable lenders to responsibly extend access to credit,” FICO said in its prepared statement. “FICO has also earned the trust of consumers through programs like the FICO Score Open Access initiative, which provides customers from more than 200 financial institutions with free access to the FICO Scores used to manage their credit accounts.”
FICO and its lawyers did not respond CU Times‘ request for comment regarding the credit union lawsuits.
The lawsuits are seeking a jury trial and unspecified monetary damages for the credit unions and their members.