Credit bureaus have blamed FICO for soaring report costs. BAC's McKay says VantageScore's rollout will put that claim to the test
Brokers have been lamenting the rising costs of credit score reporting over the last few years. It’s an issue that major trade organizations in the industry have been lobbying to change to provide some relief to homebuyers.
The Broker Action Coalition (BAC) has now added a new dimension to the argument. In a study released last week, the BAC found that the three credit reporting bureaus, which it accuses of hiking credit score costs, have collectively moved more than 30,000 jobs outside the United States.
The BAC infographic, released last week, shows that Experian has approximately 73% of its workforce outside the US, roughly 16,500 of 22,500 employees, and is headquartered in Dublin, Ireland. Equifax operates Corporate Centers of Excellence in Chile, Costa Rica, India, and Ireland, with approximately 62% of its workforce abroad.
TransUnion, the lowest of the three, still has approximately 42% of its workforce outside the US, with Global Capability Centers in India, South Africa, and Costa Rica. All of this, according to BAC, while credit report costs have risen 400% over the past decade.
Brendan McKay (pictured top), chief advocacy officer and co-founder of the Broker Action Coalition, said the findings came together after a chance conversation at a New Hampshire legislative day event, when a loan officer raised the fact that Experian is headquartered in Ireland.
"I felt the same way, both shocked, but not surprised," McKay told Mortgage Professional America. "We were very conservative in our calculations and favorable to the credit bureau. The numbers are embarrassing enough."
How will VantageScore impact costs?
Equifax provided a statement to the Scotsman Guide in response to the BAC findings, saying the claims "further miss the mark on the cost of credit" and that "the primary driver of any cost increase for credit reports is the leading credit score provider,” which was a reference to FICO.
McKay said the truth will be uncovered once VantageScore hits the market in full effect.
"If Equifax's statement on Friday is to be believed, it should be problem-solved because they're still blaming FICO for the credit report cost increase," he said. "So once Vantage truly hits the market, then I guess, according to them, we're back to $30 to $60 credit reports."
FHFA announced in April that it will accept VantageScore loans immediately, and FHFA director Bill Pulte has said VantageScore pulls will cost 99 cents per loan. McKay said if prices do not drop when VantageScore loans become widespread, it will confirm reporting made by the Community Home Lenders of America (CHLA).
"CHLA did a white paper a couple of years ago that came as close to empirically proving the true bloat in credit report costs is what the bureaus charge as possible," McKay said. "FICO has increased its cost by a massive percentage, but dollar-wise, it's a couple of bucks. And in my opinion, the credit bureaus have been using that as cover to increase the cost significantly beyond that, and then have very effectively thrown FICO under the bus for the last couple of years."
McKay said the underlying problem is structural, not just a pricing dispute.
"The root problem is they are a government-mandated oligopoly,” he said. “They're under-regulated, and they behave as if they're in a free market when they're not. We don't believe in monopolies and oligopolies unless they're going to be properly regulated."
BAC advocating for portable reports
McKay said he paid $5,000 in credit report costs in February alone, a month he described as a good one for business. The credit bureaus argue that credit reports represent less than 1.5% of closing costs, which McKay said is deliberately misleading.
"That is a textbook example of false equivalency because they're not like all the other closing costs," he said. "I don't pay title insurance unless I actually become a homeowner. Either consumers or mortgage companies are paying just to find out if they can even get pre-approved or to shop for a mortgage."
At a time when affordability is challenging, McKay said the real damage is to first-generation homebuyers for whom the path to ownership is already difficult.
"When you think about the consumer who might have a harder path to homeownership than others, and they reach out to one or two places, and they aren't able to get pre-approved, every sharp loan officer knows that person might be one phone call away from the right loan officer," he said. "If credit reports are $30, or they can just use the same one again, no problem. They're not going to pay $150, $250 just to get told no again. That's a real barrier to homeownership."
BAC has also been pushing for portable credit reports, a reform McKay said would allow consumers to purchase a single verified report and shop it across multiple lenders. He said the technology concerns that made the idea impractical decades ago no longer apply.
"Back in the 70s, you'd have to worry about someone showing up with a fraudulent credit report. Technology has solved that," he said. "You're not even really getting the credit report from the consumer. You would simply be importing it directly from the credit report provider."
Mortgage Professional America reached out to the Consumer Data Industry Association (CDIA), which represents the three credit bureaus, for comment. If a response is provided, this story will be updated.
McKay said the industry has a history of getting outraged in the fall when cost increases are announced, then going quiet by January. He said the bureaus have learned to wait out that cycle.
"A big old spotlight needs to be put on it, and people should stay mad," he said. "They can survive a week or two of noise in the fall when no one's paying attention. This needs to be a year-round issue to get some real progress, real improvement on it."
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