Credit Scores: Credit-Based Insurance Scores Page: 3 of 6
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State insurance laws generally provide that insurance rates cannot be unfairly
discriminatory. Some state regulators and consumer advocates insist that insurance scores
do in fact discriminate against low-income and minority consumers and that their use
should be banned or limited. Critics also say that insurance scores penalize poor people,
immigrants, and seniors who may not have credit records. One consumer advocate
recently asserted that insurance scores are the most controversial new addition to the rate-
setting process, that they allow insurers to double automobile premiums even for drivers
whose records are pristine, and that states should ban insurers from using them to set
rates.5 Another consumer advocate has created a separate website to inform insurance
consumers about the use of insurance scores and to urge them to get involved in forcing
insurers to abandon the practice.6
Federal Regulatory Aspects
FCRA allows CRAs to furnish a credit report to an insurer without the consumer's
permission if the report is to be used in connection with the underwriting of insurance.
However, if any user of credit information from CRAs uses such information to take any
adverse action, the person so affected must be given notification of that action. The
provisions of FCRA fall under the enforcement jurisdiction of the Federal Trade
Commission (FTC), which, in its commentary on FCRA, stated that "An insurer may
obtain a consumer report to decide whether or not to issue a policy to the consumer, the
amount and terms of coverage, the duration of the policy, the rates or fees charged, or
whether or not to renew or cancel a policy, because these are all 'underwriting'
decisions." Subsequently, in an interpretative letter, the FTC opined that the term
"underwriting decision" included the case where an insurer would be obtaining credit
reports on existing policyholders to determine whether they would be entitled to a
discount under a Good Credit Discount Program upon renewal of existing policies.8
The use of credit scores in the mortgage lending industry and its potential impact on
mortgage applicants have been addressed by the Federal Reserve System's Mortgage
Credit Partnership Credit Scoring Committee. The Federal Reserve Bank of Chicago
published an article in 2000 in which it outlined how credit scores are used in the
mortgage application process and also addressed several related issues.9 One such issue
is that while credit scores can serve an important function to facilitate access to credit,
their nature and usage could result in unlawful discrimination against minorities and low
income applicants. This is generally referred to as the "disparate impact" of the use of
s Jim Guest, "High-rate robbery," Consumer Reports, Oct. 2002, p. 7.
6 See [http://www.insurancescored.com], visited Dec. 8, 2004.
'Federal Trade Commission, "Statement of General Policy or Interpretation; Commentary on the
Fair Credit Reporting Act," Federal. Register, vol. 55, no. 87 , May 4, 1990, pp. 18804, 18816.
8 FTC letter to Mr. James M. Ball, dated March 1, 2000, available at
[http://www.ftc.gov/os/statutes/fcra/ball.htm], visited Dec. 8, 2004.
9 Michael V. Berry, "Perspectives on Credit Scoring and Fair Mortgage Lending," Profitwise, vol.
10, no.3, Fall 2000, at [http://www.chicagofed.org/publications/profitwise/2000/pwaug00.pdf].
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Credit Scores: Credit-Based Insurance Scores, report, January 19, 2005; Washington D.C.. (digital.library.unt.edu/ark:/67531/metadc817578/m1/3/: accessed November 18, 2018), University of North Texas Libraries, Digital Library, digital.library.unt.edu; crediting UNT Libraries Government Documents Department.