As part of the CFPB’s crusade against junk fees, CFPB Director, Rohit Chopra addressed credit report fees in prepared remarks at the Mortgage Bankers Association’s Secondary & Capital Markets Conference & Expo 2024. While Director Chopra began his remarks by commenting on the increasing cost of mortgage loan transactions, stating that both consumers and lenders are negatively affected, he focused most of his remarks on the increasing costs of obtaining consumer credit reports. In particular, he discussed the impact of the increasing costs on lenders and consumers, and CFPB plans to address those costs. Director Chopra explained that many lenders are concerned with the increased price of obtaining credit reports, since many lenders pull credit reports multiple times between the initial application and the time a loan is packaged and sold in the secondary market. These costs multiply when there are multiple borrowers on one loan transaction. He noted that many investors require reports from Equifax, Experian, and TransUnion, often referred to as a tri-merge report, so mortgage lenders “often end up paying for essentially the same information six or twelve times.” Director Chopra also noted that lenders must pay fees to have the reports transmitted in the correct machine-readable format to the initial purchaser of the loan, as a precursor to the loan’s securitization, and that there are also usually additional fees for things like employment verification. He explained that lenders often pass these costs to borrowers in the form of origination fees or interest rates, increasing costs across the industry.

He went on to criticize the cost model for obtaining credit reports. Specifically, Director Chopra stated that last year, a single credit report 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. He stated that in November 2023, FICO announced that it would charge lenders a flat fee for access to FICO scores, which increased credit report costs by 400% for many lenders. Director Chopra added that credit reporting companies now pay FICO a licensing fee of $3.50 per score used, or about $10 for a tri-merge report and score bundle, which doubles if there are two borrowers on a transaction. Director Chopra also criticizes FICO’s new policy of charging the same amounts for “soft” and “hard” pulls of credit reports, despite what he refers to as a “significant difference between the two data reports.” Further, he stated that “credit reports are often rife with inaccuracies discovered by borrowers and lenders” and that the “credit reporting industry has actually devised a way to profit from those problems – it’s called the “rapid rescore.” It’s a pay-to-play service where mortgage loan officers can, for an extra fee, get consumer credit files reviewed and updated quickly.”

Director Chopra noted that the increasing costs of using credit reports adds up to significant costs for consumers, especially in addition to higher interest rates, mortgage insurance for consumers that make smaller downpayments, and other closing costs. He advises that the CFPB is “eager to hear from lenders and will look at possible rulemaking and guidance to improve competition, choice, and affordability.” The CFPB is also conducting market research related to “open-banking” and alternative channels for collection of consumer data that could be used for underwriting, at lower costs to lenders and consumers. Director Chopra noted that the Federal Housing Finance Agency (FHFA), which oversees Fannie Mae and Freddie Mac, is facilitating the use of new approaches to credit scoring, and allowing consumers greater ability to share their information with lenders. Relatedly, in October 2023, the CFPB proposed the Personal Financial Data Rights rule. According to the CFPB, under this rule, “[p]eople would have a legal right to grant third parties access to information associated with their credit card, checking, prepaid, and digital wallet accounts. This type of data can help firms provide a wide range of products and services, including cash flow-based underwriting that stands to improve pricing and access across credit markets.”

In his final remarks, Director Chopra stated “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.”