PYMNTS SMB Instant Payments Deep Dive July 2024 Banner

CFPB Targeting ‘Lack of Competition’ in Credit Reporting, Credit Scores

The Consumer Financial Protection Bureau (CFPB) is looking to improve “competition, choice and affordability” in credit reporting costs and other mortgage closing costs.

In prepared remarks for a speech at a Mortgage Bankers Association conference, CFPB Director Rohit Chopra said Monday (May 20) that the agency is doing so at a time when mortgage lenders have told it that costs for credit reports and scores have increased by as much as 400% since 2022.

“Mortgage lenders in the U.S. increasingly face a lack of competition when it comes to accessing data and reports needed for loan originations,” Chopra said. “In many cases, a handful of firms have cornered the market, allowing those companies to levy a tax on every mortgage application or transaction in the country.”

Chopra added that the credit reporting industry is dominated by three players — EquifaxExperian and TransUnion — and the market for credit scores is dominated by Fair Isaac Corp.’s FICO score.

Reached by PYMNTS, FICO said in an emailed statement that the royalty it collects is “fair and reasonable.”

“The royalty collected by Fico in the mortgage market is $3.50 per FICO score — less than two-tenths of one percent of the average closing costs for a mortgage — and is fair and reasonable considering the substantial value the FICO score provides to consumers, lenders and other industry participants in facilitating approximately $2 trillion in mortgage originations each year,” the statement said.

“Notably, FICO collects $3.50 per score for the initial origination use, but FICO does not collect any incremental fee beyond that for the considerable additional value the FICO score provides downstream throughout the ecosystem — from mortgage insurance, pricing and securitization to ratings, credit risk transfer, investor disclosure, and regulatory and capital requirements,” the statement added.

Neither Equifax, Experian nor TransUnion immediately replied to PYMNTS’ request for comment.

In his remarks, Chopra said that mortgage lenders have raised concerns about the rising costs of obtaining credit scores from FICO but have no choice but to pay them; that vendors with a “captive customer base” have implemented price increases that significantly outpace inflation; and that lenders often end up paying for the same information as many as 12 times because investors require reports from the three credit reporting agencies.

Chopra added that there were sharp price increases after FICO announced in November 2023 that it would charge one flat price to all lenders rather than using its previous pricing structure based on volume.

In addition, Chopra said, credit reports often have inaccuracies, and the credit reporting industry has profited from this by charging a fee to review and update consumer credit files quickly.

“While these fees may be small relative to the size of mortgages, they add up,” Chopra said in his remarks.

Chopra said that the CFPB is analyzing these rising costs, is eager to hear from lenders about these costs, and will look at possible rulemaking and guidance.

“To lower costs for credit reports in mortgage lending, limiting chokepoints from specific data monopolists is critical,” Chopra said.

In another recent move, the CFPB said in April that it is targeting “junk fees” in the mortgage industry. The agency said at the time that mortgage servicers charged illegal fees, sent deceptive notices to homeowners and violated loss mitigation rules that help struggling homeowners keep their homes.