Rohit Chopra, the head of the Consumer Financial Protection Bureau, and frequent critic Bob Broeksmit, the president and CEO of the Mortgage Bankers Association, appeared on stage together on Monday at MBA Secondary Capital Markets conference to debate what constituted a junk fee.
Chopra, the consumer watchdog, noted that there was actually some middle ground — lenders and consumers are both being overcharged by the credit reporting industry, he said.
The scene was a bit awkward — as Chopra pointed out, the session that followed Chopra’s remarks was sponsored by FICO.
Chopra spent his roughly 15-minute speech detailing the various price increases the credit reporting industry — from Experian, Equifax, Transunion and FICO — have implemented since 2022, which in some cases have gone up 400%, he said. Those price increases from what are effectively quasi utilities, are then baked into origination fees and mortgage rates, Chopra told the crowd of mostly capital markets professionals.
Among the sticky issues, he said, is that mortgage companies usually buy a single credit report and if it’s above a certain threshold it can be automatically or manually converted into a tri-merge. Higher mortgage rates and fewer originations have increased the cost, and lenders, in many cases, “have no choice but to pay these increased fees,” Chopra said.
These annual price increases have “by far outpaced inflation,” and mortgage lenders must pay twice to confirm eligibility and then again before the loan closes, Chopra said. If there are multiple borrowers per transaction, they’ll pay “over and over again for each applicant,” up to a dozen times, he said, noting that workplace verification also adds to the costs.
“FICO’s flat charge to all lenders resulted in sharp increases for most mortgage lenders positioned in FICO’s third tier,” he said. “For this year, FICO charges the three credit reporting conglomerates a licensing fee of $3.50 per FICO score used, or approximately $10 used for all three scores if a lender received a tri-merge report and score bundle. That fee doubles if two borrowers apply together. The companies and their resellers also raised the price for soft pulls to match that of hard pulls, despite the significant difference between the two data reports. Making matters worse, these credit reports are often rife with inaccuracies, discovered by many mortgage lenders and borrowers.”
Fees on “rapid rescores” by the credit reporting companies can run anywhere to $25 to $40 credit file, per credit reporting company, Chopra said.
“A report full of bad data is another opportunity for these companies to leverage their position as indispensable market utilities and extract yet more money from consumers and lenders who have no other options,” Chopra said.
He added: “Single credit reports now typically cost between $18 to $30 for an individual report, $24 to $40 for a joint report, and $40 to $60 for a tri-merge report provided by resellers. When mortgage credit reports and scores are requested for a mortgage underwriting decision, Equifax, Experian, and TransUnion typically set the wholesale price that resellers pay, which is then passed on to users. This is often implemented through an additional fee as compensation for their services in the underwriting process.”
Chopra also took aim at related verifications that are required by investors to buy a loan. Equifax’s work number product, for example, rose from under $20 per pull in 2016 to $90 per pull in 2023. And for background screenings, the retail price is now $115 per pull, Chopra said.
“Lenders who attempt to pass on to borrowers the cost of screening applicants’ risk, do risk violating legal limitations on charging borrowers legitimate fees. This means as the cost of screening applicants rise, the cost increase for initial screening credit reports…some mortgage lenders will choose to evaluate fewer borrowers. The steep price increases raise a lot of questions for me. Why are lenders and borrowers being charged repeatedly for the same information?”
In late March, Julie May, vice president and general manager of B2B Scores at FICO, told HousingWire that in the mortgage space, the company charges “$3.50 per FICO score, and that constitutes less than two-tenths of 1% of the average closing costs of $6,000 per mortgage and is 15% or less of the average cost of a $70 tri-merge credit report.”
“If you end up pulling three scores in a tri-merge report, it’s $10.50. That is our price,” May said in an interview with HousingWire’s Flávia Furlan Nunes. “We do not set the price to the end customer that uses the FICO score; we actually license our models.”
Similarly, a representative for Equifax previously told HousingWire that the price adjustment for 2024 reflects cost increases from third-party providers of credit reports and credit scores.
However, the spokesperson added, “Equifax is sensitive to the impact these third-party cost increases may have on customers, especially given current market conditions. With this in mind, Equifax is not increasing the costs related to the Equifax credit file component of the tri-merge credit report for 2024.”
The CFPB is looking at ways to check the power of the credit reporting agencies and FICO, Chopra said, including the Personal Financial Data Rights rule.
“To conclude, we have a lot to do to think about how we’ll use data in ways that broadly benefit the market, rather than just give a handful of firms the ability to extract junk fees and push up costs for everyone.”
Correction: An earlier version of this story said the event was sponsored by FICO; in fact, it was the session that followed Chopra’s remarks.
