Judge says credit scoring group is valid

A federal judge ruled three consumer credit scoring agencies did not violate antitrust law in creating VantageScore Solutions L.L.C. in 2006, but allowed a lawsuit to proceed on several other claims against the Stamford-based company.

With a system to score consumer credit consistently across all three agencies,  VantageScore was founded March 2006 after eight months of feverish development by Equifax, Experian and TransUnion, the three major consumer-credit scoring companies.

VantageScore was sued in October 2006 by Fair Isaac & Co., now known as FICO, which claimed VantageScore and the three rating agencies were engaging in anticompetitive behavior that would harm the FICO credit scoring system used at the agencies.

FICO dropped Equifax from the lawsuit in June 2008, and in July announced a joint product with that company.

In the past, the three agencies have used differing data, and have relied on separate statistical models to interpret common data points differently, causing confusion among banks, credit card companies and other issuers of credit that rely on the scores to issue loans. VantagePoint”™s underlying statistical engine was built after an analysis of 15 million anonymous consumer credit profiles. Because the software was created from data derived between 2003 and 2005, the companies maintain it represents the most accurate picture of emerging consumer trends.

 

While variation is still possible under the VantageScore system due to ongoing differences in data categories, the gaps are diminished because all three agencies are now using a common set of underlying algorithms to crunch the data.

 

Consumers are graded on a range of 501 to 990, with the lower the score the better a consumer”™s credit worthiness.

Both VantagePoint and FICO claimed victory after U.S. District Court Judge Ann Montgomery issued a 52-page ruling, clearing VantageScore and its affiliates of antitrust behavior.

“The antitrust laws certainly are not designed to protect a competitor from having to compete with a new entrant to the market on the basis of price,” Montgomery wrote.

“We have always believed consumers benefit from a choice in credit scoring models and this ruling upholds the free and open marketplace,” said Barrett Burns, CEO of Vantage Point, in a prepared statement following the court decision. “We are pleased with our market adoption to date. We have every reason to believe adoption will continue, particularly in light of the Court”™s favorable ruling. VantageScore is a highly predictive, consistent credit score model that is also able to score a broad population.”

FICO has long maintained that VantagePoint advertising deliberately confuses consumers into purchasing the system under the false belief that they are receiving FICO scores, and in a press release stated the judge dismissed the antitrust claim only because VantagePoint”™s system had yet to achieve meaningful adoption.

“This suit is about two things: fairness and consumer protection,” said Mark Greene, CEO of New York City-based FICO, in a written statement. “At a time when consumers most need clarity regarding their creditworthiness, it”™s imperative that they understand whether or not the credit scores they purchase are industry-standard FICO scores, or merely look-alike “educational” scores not actually used by lenders to make lending decisions.”

In its fiscal third quarter ending June 30, FICO earned $18 million on $156 million in revenue, down 15 percent from a year earlier.