Auto Insurers’ Use of Credit Data

There is an effort now underway in Washington, D.C., to eliminate the use of consumer credit information by auto insurance companies.

Three lawmakers are leading that effort in Congress. On July 13, Reps. Hansen Clarke (D-Mich.), John Conyers Jr. (D-Mich.) and Bennie Thompson (D-Miss.) proposed a bill, H.R. 6129, titled “Ban the Use of Credit Scores in Auto Insurance Act.”

The bill seeks to amend the Fair Credit Reporting Act so that reports on consumer credit information can’t be used in the auto insurers’ underwriting process.

H.R. 6129 has been referred to the U.S. House of Representatives Financial Services Committee, where the leadership of the committee will decide on whether to take it up or not.

The three lawmakers say H.R. 6129 seeks to protect consumers from unfair auto insurance practices.

“My bill bans the use of credit scores in determining auto insurance rates. This is the first step in making auto insurance rates more fair and affordable,” Rep. Clarke said. “Companies penalizing citizens for their credit score and other redlining practices must end.”

Rep. Conyers added: “There is an urgent need for the federal government to protect consumers from powerful auto insurance companies whose rate setting policies are immoral, illogical, and unnecessary.”

This has long been a controversial topic. Consumer advocates argue that using credit data as an underwriting factor disproportionately harms those with financial woes and lower income. On the other hand, insurers say research data clearly demonstrate a high correlation between credit information and the frequency and cost of claims filed.

Laws vary at the state level. Massachusetts and Hawaii have laws that ban the use of credit in underwriting and rating private passenger vehicles. In California, the use of credit is not permitted for rating auto policies unless specifically allowed by the regulator.

In Washington State, a law bans cancellations after 60 days and non-renewals based on credit history. And Maryland bans the use of credit in underwriting decisions on existing business. And while credit data can be used in rating decisions about new policies, the law imposes a cap on discounts and surcharges.

Additionally, 26 states have laws or regulations based on a model law by the National Conference of Insurance Legislators. The model law requires insurers to tell consumers that a credit report may be used and to notify when credit is the basis for an adverse action. It also prohibits the use of credit data as the sole basis for refusal to insure, to non-renew or cancel.

“Your auto insurance rate should be based on your skills and responsibility behind the wheel, not extraneous factors outside your control,” Rep. Conyers said.

Itv remains to be seen if the three lawmakers can shore up enough support to move the bill forward.