Treliant Takeaway…Preventing Credit Score Discrimination
H.R.1756 – Preventing Credit Score Discrimination in Auto Insurance Act
- Source: congress.gov
Treliant knows consumer protection, risk management, and the Fair Credit Reporting Act (FCRA). If you need assistance with assessing and managing your risk, or determining the impact of the proposed legislation on your firm’s activities, Treliant can help.
On March 14, 2019, Representative Rashida Tlaib and 24 other representatives introduced House Bill H.R. 1756 – Preventing Credit Score Discrimination in Auto Insurance Act. If implemented into law, H.R. 1756 would prohibit the use of a credit report, a credit score, or other consumer information in determining auto insurance coverage or rates. The Subcommittee on Housing, Community Development, and Insurance recently held a hearing entitled, “Drivers of Discrimination: An Examination of Unfair Premiums, Practices, and Policies in the Auto Insurance Industry’. The March 4, 2020 hearing consisted of numerous witness testimonies from the insurance industry and consumer advocacy groups.
The bill’s sponsors believe that it is unfair to underwrite auto insurance policies or set auto insurance premiums using a consumer’s credit history or other non-driving related factors. They believe use of credit raises questions about fairness because it does not have a direct correlation to losses covered by an auto insurance policy. The authors and consumer advocates assert that credit information can serve as proxies for socioeconomic status and race, and note that research has found evidence of disparate impact in auto insurance rates.
However, insurance companies have argued, and other research shows, that credit scores and credit histories are correlated with insurance loss rates. Others have asserted that state regulators would not allow for the use of these factors if they couldn’t prove a legitimate correlation.
The use of credit histories in auto insurance pricing has been debated for years. Many auto insurance companies use credit-based insurance scores to calculate an individual’s rate. In 2003, Congress considered legislation that would prohibit the use of credit scores in setting insurance rates, but instead opted to defer the issue to other agencies to conduct a study on the issue. Although the FTC found that credit-based insurance scores had some proxy effect for racial and ethnic groups that resulted in higher premiums for African American and Latino consumers, it ultimately concluded that the relationship between scores and claims risk remains strong even when controlling for race, ethnicity, and income.
There is no federal law that prohibits discrimination in the auto insurance industry, but every state has provisions against discriminatory rates. Representative Tlaib has drafted a bill which would require the Director of FIO to annually publish a report that evaluates the presence or absence of disparate impact in auto insurance pricing based on certain categories of individuals.