Credit Scoring Conference - Fair Isaac Credit Score, FTC, Federal Trade Commission
Notes From the Credit Scoring Conference
FTC Building, Washington, D.C. July 22, 1999
Transcript of the FTC Credit Scoring Conference
Back in 1999, I was able to attend the Credit Scoring Conference that was held in Washington, D.C. Below are my notes from that memorable meeting and all of the events that took place surrounding this trip.
Just my luck that the 4 days I spent in our nation's capital were some of the hottest on record. I did the D.C. thing and didn't use a car, but relied on taxis and the fabulous Metro system. The dutiful pressing I gave my only suit in the hotel lasted about 5 minutes in the un-airconditioned taxi ride I took to the FTC (Federal Trade Commission) building. (I made the driver of the next cab demonstrate that the air conditioning did in fact work before I would get in.)
In comparison to ultra sensitive metal detector at the Smithsonian Holocaust Museum, which went off loudly if you had a quarter in your pocket, the security check at the FTC building was a breeze. About 150 people turned up for the all-day event, with some of the people stuck in overflow conference rooms watching a live broadcast of the proceedings.
The basic topics covered by the panelists were as follows:
- The Use of Credit Scoring in the Mortgage Industry
- Consumer's Experiences with Credit Scores
- Is Credit Scoring Fair?
- What Information Should Consumers Receive About Credit Scoring?
Some of the biggest shockers revealed at this conference:
1. The Fair Isaac scoring system, because its credit scoring method is not given out to anyone, is completely uninvestigated, unregulated and unverified for accuracy, bias, or legality, as admitted by the Federal Reserve Board panelist present.
2. Some credit card companies are pulling your credit report to watch your behavior with your other creditors and using that information to increase your interest rates. If you are late on one of your accounts, your credit score drops dramatically and therefore, they feel justified in jumping from say, 12 to 27% interest. Several consumers were present to whom this had actually happened.
3. Age, something a consumer cannot control, is a key factor in how your credit score is calculated. The older the better, with ages 50 and above being the least risk statistically as calculated by Fair Isaac. Not only that, but the Fair Credit Act forbids denial of credit based on age. Fair Isaac has somehow gotten the FTC to give them a waiver and allow age to factor into your credit score. Actually, The three biggest factors in calculating your score, other than your payment history and major delinquencies are: Age, home ownership and length at your current address. Completely unfair to those who have not or who are unable to purchase a home and to those who move around a lot for their jobs.
4. If you use a finance company for any reason, this is a negative and your score will drop. A finance company is basically anyone who is not a bank. (Examples: financing a computer or appliance from a Circuit City, Rent-to-Own companies, local private investors. Definitely unfair to people who do not have access to banks as a source of loans.)
5. Fair Isaac made the unbelievable statement that passing out to a consumer his or her credit score is not beneficial. The Fair Isaac Panelist went on to say that their job is not to educate the consumer on his or her credit score (they only create it, and don't hand out the formula, so this will work well - yeah right). As a matter of fact, the Fair Isaac Panelist went on to say, that they don't want to tell people how to improve their scores, because this would encourage people to "behave differently" and skew their model. They also claim that the one of the reasons the score is not given is because the consumer would be confused by the score and it would just be meaningless to them (yep, we're all too stupid to understand these things).
6. When asked a direct question about why the credit bureaus don't hand out credit scores, the informative response from Ray Crescenzo (the credit reporting agencies rep) was "I cannot address this issue today." (So why'd ya show up?)
7. The score range (all right, we finally get something concrete out of these guys) for your credit score (AKA FICO score) is 325 - 900 points.
8. Fair Isaac claims to be able to tell if you live in a high minority concentration area via your zip code, but also claims that it doesn't factor in this minority factor.
- Reasons Why Credit Scoring is Unfair to Minorities and Low Income Individuals
- All of the Factors Used to Calculate Your Credit Score
- Follow up Meeting with Sen. John McCain's (R-AZ) aides and how you can vote for credit scoring reform. As a result of our meeting, and the persistence of Richard LeFavre of AAA Credit, Sen. McCain sent a letter to the FTC.
Notable People Who Were in Attendance:
- Peter McCorkel, Senior Vice President and General Counsel, Fair Isaac
- Representatives from Freddie Mac and Fannie Mae, Peter Mahoney and Pamela Johnson, respectively, the two largest secondary markets for mortgages in the country.
- Robert Cook, Fair Lending Specialist, Federal Reserve Board
- Several Housing Association Representatives including, Debby Goldberg, Center For Community Change, Marcia Griffin Home Free USA and Elisabeth Prentice, Neighborhood Reinvestment Corporation. These organizations act to counsel mostly first time home buyers to get them credit worthy enough to purchase a home in areas targeted for revitalization. They are NOT debt counseling organizations.
- Margot Sanders, Managing Attorney, National Consumer Law Center. NCLC provides case assistance, legal research, and technical advocacy training in consumer and energy law for local legal assistance and private attorneys representing low-income clients, lay advocates, and community-based organizations. NCLC also teams with counsel for consumers in the courts and before legislators and government agencies. (Their web site is excellent, you should check it out!)
- Two representatives from the credit reporting agencies (though no one from the 3 credit bureaus themselves showed up), Ray Crescenzo, Vice President, Associated Credit Bureaus, Inc. and Richard LeFebvre, AAA American Credit Bureaus.
Incredible as it may sound, the biggest users and proponents of credit scores were not there:
- No one from the 3 credit bureaus (Equifax, TransUnion or Experian), which pass out your credit score right and left, was present.
- No one from the credit card industry, which will raise your interest rate at the drop of a hat due to your credit score, was there.
- While there were many representatives from various mortgage companies, no auto finance people showed up.