Customer Credit Analysis
The debate over the appropriate application of consumer credit information continues to rage nationwide, and discussions have become particularly heated in the auto insurance industry. This summer, legislators in the House of Representatives introduced legislation that would make it illegal for auto insurers nationwide to pull credit report information when determining rates for car insurance applicants.
Insurers in some states conduct this type of credit risk analysis because some research reports suggest that consumers who reliably pay down debt are often safer drivers. However, opponents say the practice unfairly prices low-income individuals out of affordable car insurance.
Affordability was a significant driver for Representative Hansen Clarke from Michigan, who co-sponsored the “Ban the Use of Credit Scores in Auto Insurance Act” with Representatives John Conyers Jr. of Michigan and Bennie Thompson of Mississippi. Introduced in July, that bill is currently under review by the House Subcommittee on Financial Institutions and Consumer Credit.
“An individual burdened by medical debt or job loss should not be subjected to higher auto insurance premiums,” said Conyers. “Your auto insurance rate should be based on your skills and responsibility behind the wheel, not extraneous factors outside your control.”
Conyers and Clarke have a vested interest in the subject – residents in the state they represent pay some of the highest auto insurance rates nationwide. If passed, the bill would amend the Fair Credit Reporting Act.
Some states already ban this type of credit risk analysis, including Massachusetts and Hawaii but auto insurers that support the practice say research supports its effectiveness. Research appears to suggest consumers with low credit scores file more insurance claims, though opponents argue that this may be more a reflection of their environment – individuals in low-income areas may be more at risk for vehicle theft or vandalism, for example.