Full text of letter from Fair, Isaac & Co. to a California legislator on credit score disclosure.

May 2, 2000

Hon. Adam Schiff
State Capitol Room 5080
Sacramento, CA

Subject: CA Senate Bill 1607

Dear Senator Schiff:

Fair, Isaac and Company Inc. ("Fair, Isaac") pioneered the development of statistically-based credit risk evaluation systems, commonly called "credit scoring systems" and is the leading developer of those systems, worldwide. Thousands of credit grantors use the Fair, Isaac-developed scoring systems available through the national credit reporting agencies, and we have also developed customer scoring systems for hundreds of the country's leading banks, credit card issuers, finance companies and retailers.

Credit scoring has become an essential part of most consumer credit decisions over the last 40 years. However, its use in mortgage lending is more recent, having become widely accepted only during the last five years. Mortgage lending is different than other types of consumer credit with respect to the use of credit scoring in several important ways:

1. The importance of mortgage decisions is much greater to both lenders and borrowers than most other credit decisions;
2. Scoring is usually only used as one component of a mortgage loan decision; and
3. In the mortgage area, most consumer contact is with intermediaries who have a large stake in closing the deal, but little if any interest in long-term loan performance.

This situation presents both opportunities and challenges with respect to possible education of consumers regarding the role of credit scoring.
Fair, Isaac supports the disclosure of credit scores to consumers by lenders in the context of a decision on a bona fide application for a mortgage loan, [Emphasis: Fair, Isaac] but we believe that mandatory disclosure of credit scores by consumer reporting agencies, not tied to a specific credit decision, is unwise. Disclosure of just a credit score in isolation is not likely to be helpful to the consumer and may, in fact, be misleading and even harmful. Disclosure of a score based on credit report information should be accompanied by the reasons provided with such a score, the credit report on which such a score is based, and an explanation of how the score figures in the overall lending decision. Credit scoring is neither easy to explain nor to understand. Because both the lender and the borrower have so much at stake, the mortgage loan situation provides some assurance that the lender will make the effort necessary to explain, and the consumer will make the effort necessary to understand, the complex subject of credit scoring and its relationship to the overall lending decision process.

Even though scores may be delivered by a third-party such as a credit reporting agency, only the lender knows how it uses those scores in making credit decisions, and only the lender can begin to answer the consumer's real questions: Will I get the loan for which I am applying? If not, what do I have to do to qualify for such a loan in the future? Both the U.S. Congress and the Federal Trade Commission have rejected proposals to require score disclosure by credit reporting agencies after full deliberation on that question. Only a lender can provide the additional information needed to explain scores and put them in their proper context within the overall credit decision process; disclosure of scores by credit reporting agencies will inevitably lead to greater confusion and frustration on the part of consumers than exists today.

Fair, Isaac appreciates the opportunity to testify regarding SB 1607 and will be happy to answer any questions on this topic now or in the future. Please feel free to contact me at (415) 491-5101 or pmccorkell@fairisaac.com.

Sincerely yours,

Peter L. McCorkell
Executive Vice President

Cc: Hon. Liz Figueroa

PLM:plm