FICO's direct sale plan jolts credit reporting stocks
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FICO shook up the credit reporting world Thursday with plans to sell credit scores more directly to mortgage lenders.
Why it matters: The move bypasses the major third-party credit bureaus — TransUnion, Experian and Equifax — creating new competition in that slice of the business, and potentially crimping their bottom lines.
Driving the news: Fair Issac Corp. announced late Wednesday it will launch FICO Mortgage Direct License Program, a move it says "will drive price transparency and immediate cost savings to mortgage lenders, mortgage brokers, and other industry participants."
- "This new distribution model will allow lenders to avoid paying the current about 100% markup the credit bureaus currently charge for the FICO score," analysts at brokerage Raymond James said, according to Reuters.
How it works: Until now, the three major credit bureaus have been the only source for FICO scores available to entities known as tri-merge resellers, which package up credit reports and scores from the bureaus for mortgage lenders.
- The bureaus — which supply the more detailed credit reports on prospective lenders — have been able to mark-up the price of the FICO scores as part of their distribution business.
- FICO is now allowing resellers to calculate and distribute its scores directly.
The other side: The Consumer Data Industry Association (CDIA), which represents the credit bureaus, disputed the notion that the move will save costs.
- "While the Direct License Program announced by FICO is positioned as a cost-cutting measure, it is simply not true," CDIA said in a statement, saying it instead raises costs and will prompt lenders "to pass on significantly higher costs to consumers, especially those that are successful in securing a mortgage."
Friction point: FICO had been under pressure from Federal Housing Finance Agency director Bill Pulte to make changes.
- Pulte recently called FICO a monopoly, assailed the company's influence in Washington and criticized its pricing.
- He welcomed the changes on Thursday: "While their decision is a first step, it is appreciated," he said on X. "I encourage the Credit Bureau's to also take similar creative and constructive actions to make our markets safer, stronger, and more competitive."
The impact: Fair Isaac shares closed up 18% Thursday.
- Stocks for the credit bureaus, meanwhile, went the other way. TransUnion (-10.6%), Equifax (-8.5%) and Experian (-3.4%) all closed down.
