Case Dismissed? New Information on the FICO vs. VantageScore Lawsuit

VantageScore announced Wednesday that the U.S. Court of Appeals for the Eighth Circuit issued a decision that rejected an appeal by FICO basically affirming all earlier decisions made in favor of VantageScore.

As background, in 2006 the three credit reporting agencies (Equifax, Experian and TransUnion) along with VantageScore Solutions released to market a new broad-based credit risk score called VantageScore that lenders could purchase to help them evaluate the future credit risk of prospects and customers. Shortly thereafter, FICO filed a lawsuit claiming that the credit reporting agencies and VantageScore Solutions were engaging in unfair and competitive practices that could harm FICO.

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In 2010, a U.S. district judge dismissed FICO’s claim of antitrust, false advertising and breach of contract, and the judge denied FICO’s motion for a new trial and ordered the cancellation of FICO’s trademark for its scoring range of 300 to 850 once FICO’s appeal concludes.

So what does all this mean for lenders and consumers in 2011 when credit dynamics, practices and the regulatory environment are so drastically different compared to 2006 when the lawsuit was originally filed?

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From my perspective (and I’ll leave any legally focused review and assessment to others):

Fair competition is healthy for an industry as it often spurs innovation. Both FICO and VantageScore are committed to providing the industry with the most predictive credit scores, which will help lenders make better informed decisions to reduce risk which, in the long run, benefits the market as whole with more affordable credit.

Indirectly, the lawsuit has helped raise and increase awareness of credit scores for consumers, regulators and legislators. As a result, there is a wealth of educational support materials and information available to consumers regarding credit scores, the important role they play in our daily lives and insights on how to improve them over time.

At the same time, there is more that can be done to increase score transparency for the consumer. Many consumers are still confused as to what score they are getting when they purchase them directly from the various consumer websites and whether that score is the same score the lender is using to evaluate their application for credit. The newly formed Consumer Financial Protection Bureau (CFPB) has made consumer credit education a primary focus—including the issue of score brand transparency for the scores made available directly to consumers. I am very interested to review and report out their findings.

Only the parties involved in the lawsuit can determine if this chapter of credit score history has come to an end.

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Disclosure: Please note nothing in this post should be considered legal opinion or review. In addition, Mr. Quinn was employed by FICO when the lawsuit was filed and through August 2010.