FICO Changes coming

Very interesting! I will be interested to see what happens, has anyone heard when these changes will go into effect?


Tegleg

 

Oh God . . . here we go again!

They're not going to go into effect, if they do, they won't last. That proposed model is illegal under the ECOA.

This is all spin folks . . .

 

I think the declaration of illegality is premature, at best. It will likely require litigation to establish that it has violated the ECOA.

There are a number of very big players involved, and it would be highly likely that the revised algorithm will have had significant scrutiny by teams of very sharp lawyers reviewing the companies's exposure under the ECOA.

The scenario that I would expect to see is an implementation of the new scheme followed by suits to derail it. I would doubt that an injunction could be obtained to halt implementation, so the scheme would be applied until the suit is case is settled. The result would be that the new methodology would apply until it is declared illegal, if ever.

I do not doubt that the companies will try to alter the scheme, nor do I doubt that the scheme will be challenged. What I do doubt is that it will be a non-issue for consumers while it is being settled.

 

I think the declaration of illegality is premature, at best. It will likely require litigation to establish that it has violated the ECOA.

There are a number of very big players involved, and it would be highly likely that the revised algorithm will have had significant scrutiny by teams of very sharp lawyers reviewing the companies's exposures under the ECOA and other relevant statutes. I am confident they are aware of the criticisms that are being leveled and aware of the statutory limitations they must respect. How the final product is crafted will tell the true tale.

The scenario that I would expect to see is an implementation of the new scheme followed by suits to derail it. I would doubt that an injunction could be obtained to halt implementation, so the scheme would be applied until the suit is case is settled. The result would be that the new methodology would apply until it is declared illegal, if ever.

I am not suggesting that FICO-08 is or will be legitimate, only that: a) it is far to early to speculate as to what its fate might be, and b) we may be subject to its effects while it's fate is deliberated.

 

Translation: what I said.

And disregarding authorized user accounts under a credit scoring model is illegal per se:

(6) Credit history. To the extent that a creditor considers credit history in evaluating the creditworthiness of similarly qualified applicants for a similar type and amount of credit, in evaluating an applicant's creditworthiness a creditor shall consider:

(i) The credit history, when available, of accounts designated as accounts that the applicant and the applicant's spouse are permitted to use . . .

 

Your citations of the statute are quite accurate.

Your assumption that the implementation of FICO-08 transgresses is but speculation, since a) the algorithm has yet to be finalized, b) the algorithm has yet to be implemented, and more importantly, c) no one outside of the very closed group consisting of Fair-Isaac and the CRAs knows what it actually contains. Such is the secretive world of FICO.

Best to wait until it issues before making judgment.

More to the point, it is not what you or I judge to be illegal, and we may well be right.

It is, however, what the Courts, in their wisdom, choose to do, and no relief obtains until they so direct.

My point that a new algorithm will likely issue and be implemented remains, and that unless injunctive relief is immediately obtained to halt its use -- which I believe to be unlikely -- the consumer will be burdened with whatever its implementation has to offer until the Courts' adjudication is available, whatever that might be.

I would be interested in seeing where my point might be in error.

 

Yes, "shall" means "must" which means that someone is directed to do or not to do something. I don't understand your point however, insofar as that is what you're stating as well. As it applies to this discussion, the ECOA directs that a creditor "shall" consider accounts which are permitted to be used. In other words, they must consider authorized user accounts. If they don't, they're in violation. I'm just giving the statute is plain meaning.

Oracle, I'm not saying that your post is in error rather, I'm saying that you're stating what I'm espousing. I acknowledge that someone must be harmed by FICO 08' and then must take the necessary steps to be made whole. That is why I stated that if it's implemented, it will not last long because it screams class litigation.

Now, if you think that Fair Isaac will implement this nonetheless, that is your opinion and you have a right to it. I cannnot change that nor do I care to. However, it is worth noting that the media has been running this propaganda since June and nothing has happened. First, it was to take effect across the board. Then with respect to only one credit reporting agency in September. Nothing happened and now Fair Isaac isn't even saying when it may take effect. As for Trans Union and Equifax, they initially only said that they would "review" it at some point in 2008 in order to determine if they would allow it to be applied to their data. All of the above doesn't even factor into the equation Fair Isaac's litigation with the credit reporting agency and their baby, the Vantage score.

Therefore, I would submit that perhaps it is "premature" to feel that this model will ever see the light of day. It is my feeling that it will not based upon the events which have transpired and the certainty of litigation if it is implemented.

 

Will the new algorithm ever see the light of day? According to the WSJ, it is in test as we write. I have no reason to dispute the WSJ's reporting, but I do not take their word without some skepticism.

In as much as your firm offers seasoned trade lines for sale, I can see your interest in this topic. Your ox is at risk of being gored.

But your interest does not equate to a "must" for F-I, nor does the statute dictate how they must "consider" or the weight that they give specific elements within the bounds of that consideration. They must only consider.

As to the timing of any possible implementation, I see no requirement for anyone to set a firm and fast date for any change, or for that matter the necessity for them to even announce that it has taken effect. There is no statute governing such action.

Given the interest in such change from the lending community (F-I's ultimate client) and the expense that F-I has gone to in redesigning the equations, I doubt that it would get dropped. The current crises in the credit markets are not quieting the calls for better tools. But your opinion and mine differ on this score. Time WILL tell who's assessment is more correct.

Media spin? While the industry is likely engaged in spin, it is probably on account of unauthorized leaks of information, which can themselves be considered spin. One side's "fact" is merely propaganda to the other. It's very much a case of spin versus spin.

It is through the fog of all the spin that one must extract an informed belief.

Of greater interest to me is the continued talk of the the big-three CRAs going it alone with their own, competing scoring model. That represents a whole new dynamic, full of all the usual unknowns.

 

Okay.

Would you say it premature to think that this model will be implemented based upon the "facts" we have before us?

Presuming you find it not to be premature, do you find it rational to believe that it will last?

Do you find it reasonable to believe that class litigation isn't a forgone conclusion based upon the language of the law?

 

Emphasized text below is mine,

 

The model isn't amorphous. It is stated that it will disregard the scoring of authorized users.

The ECOA states that all accounts which the applicant is permitted to use "must" be considered. Disregarding them is not considering them. In fact, it is exacly the opposite.

The above is a clear reading that anyone can understand.

I can tell you "affirmatively" that I've never heard anyone successfully argue the absence of statutory language. I've never heard the argument made that shall doesn't mean must either. I base this on both clerking and litigating.

Finally, no one will be requesting the inner-workings of the model. It will be simple as the fact that millions of people scores drop and the fact that FI already said they would.

Any potential action would be disposed of as a matter of law.

It is really that simple.

 

It's all in how they do it, not in what press releases or magazine articles say.

Do yourself a favor. Put yourself in their shoes and argue that what they are doing is right. You'll see some of the wiggle room they might actually have.

If you are going to be the one that joins the suit, it is good for you to understand what it is that they may be contending in defense.

 

We have each expounded our positions, and it is likely time for us to let the readers determine their own opinions on this subject.

 

I do regulatory enforcement for the Commonwealth of PA IRL. (Unfortunately, not consumer protection). I've done it for 14 years and enforced state and federal regulations. In my experience "shall" means "must". It's either an instruction or a requirement for a covered individual, company or other entity.

 

According to Black's Law Dictionary:

shall
v. 1) an imperative command as in "you shall not kill."
2) in some statutes, "shall" is a direction but does not mean mandatory, depending on the context.


It will be left to the courts to determine the minutia of the language.

 

Now that leaves two hanging ambiguities, "shall" and "consider". Likely large enough to drive a FICO algorithm through the openings with the hands of a really sharp corporate litigant on the wheel.

 

This is the definition of shall that I have before me:

Shall - 1. Has a duty to; more broadly, is required to <requester shall send notice> , 2. Should <all claimaints should seek mediation, 3. May <no person shall enter the building>, 4. Will, 5. Is entitled to.

I got the above definition from Blacks Law Dictionary, 7th Edition.

Therefore, I think it should be obvious that "shall" consider would mean that a credit scoring must do just that with respect to authorized user accounts. They shall have to put some weight to them or at least acknowledge them. Devising a model which disregards authorized user accounts is not giving those accounts "any" consideration.

I think that this much should be simple and essentially indisputable.

I don't think it's a matter of how they do this. That is to say that I don't think its an issue of how they disregard them rather, only that they do disregard them. FI has already stated that FICO 08' is to disregard "all" AU accounts so that is not in issue either.

As they've stated as to how the model will perform, it is illegal per se insofar as, again, these accounts will not be given consideration. It, therefore, is in violation of the ECOA.

It is essentially the same as if a creditor reports and verifies information which is inaccurate and which inaccuracy has been pinpointed and is truly inaccurate. I suppose we can argue as to how they verify the inaccuracy but, the act of verification is in violation of the FCRA. It doesn't matter how or why. It is the same with failing to consider AU accounts.

In any event, yes, you've stated your opinion and I mine. Movin' forward and we will let others take a peek.