Mortgage lenders First Financial Lending and Greystone Mortgage filed a class-action-seeking lawsuit this week accusing credit reporting agency Equifax of maintaining a monopoly in the market for electronic income and employment verification (VOIE).
The case is tied to a strong increase in the cost of credit reports for mortgage lenders this year, which has been criticized by advocates such as Consumer Financial Protection Bureau (CFPB) head Rohit Chopra.
The two mortgage lenders filed the antitrust lawsuit on May 28 in the U.S. District Court for the Eastern District of Pennsylvania.
Mortgage lenders use payroll data during the underwriting process to qualify borrowers, and without it, many consumers are unable to obtain a mortgage. These companies can check the information manually by calling employers, but the process is slow and expensive. It’s more effective to rely on electronic verification services.
According to the lawsuit, Equifax controls this market through a product it acquired in May 2007 called TALX Work Number.
The plaintiffs state that the firm exercises monopolistic power through three primary strategies: entering multiyear, exclusive deals with large payroll software providers and employers; distributing “revenue shares” to these data providers; and spending “billions of dollars” acquiring companies that present a competitive risk.
Katie R. Beran, lawyer for the plaintiffs and partner at Hausfeld, wrote to HousingWire that the lawsuit resulted from Hausfeld and Garwin Gerstein’s year-long investigation. It revealed “not only Equifax’s scheme to unlawfully maintain its monopoly over electronic income and employment verification services but also how the victims of that conduct who depend on the services—mortgage brokers, lenders, and landlords, among others—have been harmed.”
“We intend to hold Equifax accountable for its unlawful practices and provide meaningful compensation to its victims,” Beran wrote.
A spokesperson for Equifax said the company “is aware of a lawsuit filed” in Pennsylvania this week and “will respond to the litigation as appropriate.”
“Every day, verifications from The Work Number® help people with important life events, like applying for a mortgage, purchasing a car, or seeking social service benefits. Our model starts with the consumer’s engagement, and provides consumers, employers, and verifiers a frictionless process that offers the highest-class customer experience, quality, security, speed, accuracy and privacy,” the spokesperson added.
According to the plaintiffs, one piece of evidence of Equifax’s monopolistic power is a gross margin that exceeds 50% with the electronic VOIE service, since it charges prices “far higher than a competitive market would bear.”
The service’s price went from $17.85 in 2012 to $66.45 today — an increase of 272%. This is the cost for a single transaction using current information, and the lawsuit states that the price rises to $200 for records with more historic information.
Ultimately, Equifax’s verification services generate close to $2 billion in profits per year, nearly 40% of the company’s total, the document states.
Further evidence of a monopoly is that “through its exclusive agreements with data contributors, Equifax has been able to foreclose competitors from at least 40% of the data inputs necessary to make a competing VOIE product viable. That continues to be the case today,” the lawsuit reads.
Per the lawsuit, two competitors — Argyle and Certree — submitted a letter to the Federal Trade Commission (FTC) “in the fall of 2022 alleging that the barriers to entry Equifax had erected slowed or prevented their entry to the market.”
According to the lawsuit, as of April 2024, Equifax had 670 million records of work numbers — a key repository of employment and income data. This was more than double the 300 million records it had recently as 2021. They represent 126 million individuals, or more than 75% of U.S. nonfarm payroll workers, and 3 million employers. Most of the data is exclusive to Equifax.
In 2008, the FTC accused the company TALX — which sold the electronic VOIE product to Equifax — of acquiring four rivals to reduce competition in the market.
It resulted in TALX (then a Equifax subsidiary), Equifax and the FTC entering into a 10-year consent order in August 2008, which imposed limits on the company’s acquisitions of other businesses in the market for electronic VOIE.
Since 2021 — after the expiration of the consent order — Equifax has completed 14 acquisitions, one-third of them related to Equifax Workforce Solutions, the document added.
Equifax’s work number product has garnered attention from regulators. In a recent speech, CFPB head Chopra said that the bureau has observed its significant price increases. “Users tell us that Equifax’s market dominance has given it pricing power that it has exercised over the past several years,” he said.
The lawsuit is based on public statements by Equifax, regulators, competitors and interviews with confidential witnesses. The lenders seek damages and injunctive relief, and demand a trial by jury.
Editor’s note: This story has been updated with a statement from Equifax and Katie Beran.
It’s about time. They should also reign in the cost of credit reports as well.
This statement is not true. “These companies can check the information manually by calling employers, but the process is slow and expensive.” Mortgage companies cannot call employers directly that report to The Work Number, the employer refers the mortgage company back to the Work Number to verify, so mortgage companies are required to use it.