Why is the decision to promote competition in the credit scoring model industry complicated? At first blush it would seem to make perfect sense. More competition could lead to lower costs for those who use the scores. Furthermore, it might increase the likelihood that some qualified individuals — who may not be approved for a loan under the criteria utilized by the FICO model — get access to credit.
The problem is not of course more competition. The credit scoring industry — and ultimately consumers — would benefit from more alternatives to FICO. This was discussed at an event I moderated this week in Washington, D.C. hosted by the Progressive Policy Institute.
The issue is the legislation to push for alternative scoring models may simply trade one dominant player (FICO) for another (Vantage).
The reason? Because the owners of Vantage control the supply of information currently used by FICO to make its determination. And given the history of monopolies, it would not be surprising to see Equifax, Experian, and TransUnion use that leverage to the advantage of Vantage, and eventually force FICO out of business.
Continue reading at The Hill.
