FICO 08 - Contradicting the law with regards to AU's?

[Anonymous]

Read the section in bold below. Houston, Do we have a problem?


edited, as the article turned out to be a press release from a credit repair organization. But thanks to Boscoe for reviving discussion of the ethics of AU status and piggy-backing! --hauling

Message Edited by haulingthescoreup on 04-06-2008 12:17 PM

[haulingthescoreup]

Interesting article! Can you please post the link to your source? (We have to do this here.)

This has always been one of the roadblocks to dropping the AU scoring --its impact upon spouses, which with AU status, generally means the wife. And if it's a Significant Other in a long-established relationship, this person should be able to maintain the history as well. The problem is that it's such a minefield to determine who deserves to have AU status. Spouses? SO's? Teenaged children? Adult children? Siblings? Good friends? And so it goes. The easy way is to flush all of them.

But it still irks me that credit wanna-be's can buy the history of total strangers. (Kinda sounds like your source article was from a history re-seller...)

[Dawn]

I have always suspected that because of the ECOA that creditors will continue to to be required to report spousal AUs and the CRAs would continue to maintain them in their files.  This then puts the burden on the creditors as to how they evaluate the files of spouses who are dependent upon their AU status in order to qualify for credit.  Are they going to manually review these files?  Or are they going to stick with an older scoring model that does the work for them?  That doesn't look good for FICO 08.

Since a portion of the ECOA was specifically written to provide protection to spouses who didn't have credit in their own names because of the general practices of the time, I would think that in order for FICO 08 to be in compliance to be used in credit decisions, the creditors would have to report whether AUs were spouses or non-spouses. 

The CRAs would also have to make that designation available in the fields evaluated by the scoring software and the scoring software would have to be modified to take that into consideration, thus, giving credit to spouses but not giving credit to non-spouses. 

If it is determined that those other than non-spouses should be included in scoring AUs there would probably have to be new legislation requiring that, and additional reporting requirements and scoring requirements.

This should get very interesting, if and when lenders attempt to utilize the new scoring model.

[MidnightVoice]

---

Dawn wrote:

I have always suspected that because of the ECOA that creditors will continue to to be required to report spousal AUs and the CRAs would continue to maintain them in their files.  This then puts the burden on the creditors as to how they evaluate the files of spouses who are dependent upon their AU status in order to qualify for credit.  Are they going to manually review these files?  Or are they going to stick with an older scoring model that does the work for them?  That doesn't look good for FICO 08.

Since a portion of the ECOA was specifically written to provide protection to spouses who didn't have credit in their own names because of the general practices of the time, I would think that in order for FICO 08 to be in compliance to be used in credit decisions, the creditors would have to report whether AUs were spouses or non-spouses. 

The CRAs would also have to make that designation available in the fields evaluated by the scoring software and the scoring software would have to be modified to take that into consideration, thus, giving credit to spouses but not giving credit to non-spouses. 

If it is determined that those other than non-spouses should be included in scoring AUs there would probably have to be new legislation requiring that, and additional reporting requirements and scoring requirements.

This should get very interesting, if and when lenders attempt to utilize the new scoring model.

---

The thing is, fair Isaac does not make credit decisions.  As long as AUs are reported (the CRAs job), then FI can use any analysis sytem it likes - it is up to the credit giver to decide what to do with the information.  I am not sure how much it needs to comply with ECOA

And statistically, if removing AUs gives a more accurate result, then FI is doing what its customers want.

And it is not as though this is a surprise - I spend some time last year assuring that myself and Dw were both protected when the AU ship goes away.

And finally, AUs are NOT liable for an account - hence in law it is an interesting point if this is fact "part of their credit history". 

[Dawn]

MidnightVoice wrote:

The thing is, fair Isaac does not make credit decisions.  As long as AUs are reported (the CRAs job), then FI can use any analysis sytem it likes - it is up to the credit giver to decide what to do with the information.  I am not sure how much it needs to comply with ECOA

And statistically, if removing AUs gives a more accurate result, then FI is doing what its customers want.

And it is not as though this is a surprise - I spend some time last year assuring that myself and Dw were both protected when the AU ship goes away.

And finally, AUs are NOT liable for an account - hence in law it is an interesting point if this is fact "part of their credit history". 

I agree that FI can create any type of analysis system it wants and that it is up to the creditor to decide whether or not to use it.  The legalities of what must be considered in scoring is something that I won't ever have a genuine handle on ... as I'm not going to push it.  I've done the same thing as many others in preparing myself by establishing credit in my own name so that I am not dependent upon DH.

On another note ... if AUs are not liable for accounts in community property states ... I sure wish someone in the legal profession would chime in and clear this one up.  I've seen many references in various places indicating that even without being an AU or a joint owner on an account, spouses in community property states can be held liable in some instances.

Message Edited by Dawn on 04-06-2008 01:50 PM

[Anonymous]

As requested, here is the link from Reuters....

edited to remove link to press release from credit repair organization--please see comment on post #1

Message Edited by haulingthescoreup on 04-06-2008 12:19 PM

[Anonymous]

To add to what Midnight Voice said:

Obviously, FI is only providing the data and the lenders have to make their own decisions.  But since it is industry practice to take the FICO scores at face value and in some cases, use the score as the ONLY borrower-provided info that is verified, then I think they have some exposure vis-a-vis the ECOA.

I think this article has it right - TU and EQ are probably letting EX do the dirty work, get served with the lawsuits and wait for the ruling before adopting FICO 08 themselves.

Personally, I think this "get rid of AU's across the board" is too draconian.  There needs to be some application of common sense here.  Either allow just spouses, or more fully implement the add on software that can remove AU's from the score and do a comparison.   Any differences that result in a higher interest rate or adverse underwriting decision would trigger a manual review and possible follow up conversation with the borrower.

This could make the FICO 08 implementation very interesting.

[haulingthescoreup]

Ouch! That's what I was afraid of. This was a press release from a company that makes its living by selling the credit histories of one stranger to another, so that the purchaser can artificially inflate his/her scores.

So I have to edit out the info, but the article inadvertently reminds us of the plight of those who legitimately signed on as AU's on the cards of family members, and who are now left hanging high and dry. It was not all that long ago that "housewives" frequently did not get credit in their own names, but were AU's on their husband's accounts instead. These women, who are now generally in their 60's and above, must either go joint on their husbands' accounts (assuming that the CCC's will let them do so), or they must establish credit in their own names, and per their history, are now on a par with those who just graduated from college.

Unfortunately, it is because of the actions of companies like the one that released this editorial that these spouses/ significant others/ etc are potentially hurt.

[MidnightVoice]

By the way - check out the source of the article

Companies like xxxxxxxxxxxx.NET remain optimistic and do not foresee
FICO '08 moving forward as proposed, in light of its illegality; and as such,
they plan to continue to offer Platinum account trade lines to Americans in
need of a quick and easy FICO score boost.
- Created By:
XXXX CREDIT SERVICES

- Edited and Released By:
XXXXXXXXXXXX.NET

SOURCE xxxxxxxxxxx.NET

I wonder why they think it is illegal

edited to remove link to naughty people --hauling

But oh, yeah, talk about self-serving...

Message Edited by haulingthescoreup on 04-06-2008 12:24 PM

[Anonymous]

Both of the Mods here make good points, but it still raises the issue of a possible violation of the ECOA.    

If someone could verify that section of the ECOA that discusses spouse's rights and post it, that would add some credence to the non-removed article.   I agree that these outfits have an ax to grind to prevent FICO 08, but since we live in such a litiguous society, I find it hard to believe that someone won't start filing lawsuits or maybe even injunctions to ensure compliance with ECOA.