Posted by Robert Duque-Ribeiro, FICO VP and general manager, Scores Business Unit
In October 2008, the Federal Trade Commission and 24 state agencies announced a crackdown on 33 credit repair organizations (CROs) in 22 states, and brought 7 lawsuits. The FTC’s cease and desist orders alleged that the CROs had deceptively claimed they could remove negative information from consumers' credit reports, even if that information is accurate and timely. The FTC charged these entities with violations of the FTC Act and the Credit Repair Organizations Act by making false and misleading statements. The crackdown was part of the FTC’s “Operation Clean Sweep.”
Most of these entities settled with the FTC and agreed to abide by its cease and desist orders, which effectively put these CROs out of business. However, RCA Credit Services decided to contest the FTC in a federal court. The FTC asked FICO for its help in the case, which was argued and decided last month in Tampa, Florida.
During the trial, the FTC argued, with help from FICO principal scientist Paul Panichelli, that RCA's claim—that its use of “piggybacking” would invariably boost FICO® Scores into the 700s—was false. In normal use, piggybacking occurs when a credit card accountholder adds a spouse or child, or perhaps another family member or business employee, as an authorized user on the card account. The primary accountholder retains full financial responsibility. A much shadier version of piggybacking has been promoted by some CROs who offer to “rent” to their credit-challenged customers the trade lines of established accountholders, in an effort to boost their customers’ credit profiles and scores.
In support of the FTC’s case, Paul’s testimony drew on simulation studies by FICO. These showed that adding clean, established authorized user accounts to low-scoring credit reports was rarely effective in boosting credit scores from low score ranges into the 700s within a short time, as purported by RCA.
Since this illicit practice first came to light in 2007, we have enhanced the design of our FICO® 8 scoring model to protect both scores and lenders from potential gaming by this type of piggybacking.
In the case against RCA Credit Services, six of seven counts were decided against RCA on summary judgment. The seventh count, surrounding RCA’s claim of being able to boost scores into the 700s, was argued at trial, and the court again ruled against RCA Credit Services and ordered restitution and other damages.