NC Rep. Mel Watt: Don’t Use Credit Score In Figuring Car Premiums
By Susanne Robicsek, North Carolina Bankruptcy Attorney on May 28, 2008 in General Bankruptcy Information, North Carolina
People who file for bankruptcy face the challenge of reestablishing their credit ratings as they get back on their feet following a bankruptcy discharge. As I said in my post in October 2007, there are many good people who have had financial issues that were not their fault, such as medical problems, job layoffs or divorces. Even if overextended, that doesn’t make someone a bad driver. When money is tight, late payments contribute to bad credit scores, and insurance companies are making things worse by charging higher car insurance premiums based on low credit scores.
Bankruptcy can help people get out of debt, but it also contributes to a lower credit rating. As people are struggling to pay rising food prices, and as gasoline approaches $4.00 per gallon, North Carolina Representative Mel Watt is moving forward to try to keep insurance companies from charging increased car premiums for people because of their credit rating. Rep Watt doesn’t accept the insurance industry’s claims that drivers with low credit scores are an increased risk for automobile coverage. Read Charlotte Observer article below:
Watt: Don’t use credit score in figuring car premiums
Charlotte Democrat says practice is discriminatory. Insurers say most people actually benefit from it.
By Lisa Zagaroli Posted on Thu, May. 22, 2008
McClatchy Newspapers
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MCT
Representative. Mel Watt (D-NC), Chairman of the Financial Services Subcommittee on Oversight and Investigations, listens to testimony during a hearing to examine the Home Mortgage Disclosure Act (HMDA) on Wednesday, July 25, 2007. (Rafael Suanes/MCT)
WASHINGTON –
Rep. Mel Watt said Wednesday he would push forward with legislation curbing insurers’ ability to weigh whether people pay their credit card bills on time in determining if they get good car insurance rates.
The Charlotte Democrat, who chairs an oversight panel of the House Financial Services Committee, said he remains convinced that the use of credit scores amounts to allowing racial discrimination as a factor in setting premiums.
“I don’t think it’s any more rational to be basing insurance premiums on credit than for lenders to base credit decisions on driving records,” Watt said after holding his second hearing on the matter. “It just doesn’t make any sense.”
A Federal Trade Commission report issued last year said that credit scores effectively predict the frequency of claims made to auto insurance companies. It said there was a “relatively small” chance of the scores being used as a direct substitute or “proxy” for race or ethnicity.
The study has come under public scrutiny in part because of the way the information was compiled from insurance companies.
So the FTC announced Wednesday that it would use its subpoena power to gather data from the nation’s nine largest insurance companies for the next part of its study, which will examine the use of credit scoring on home insurance premiums.
“The goal of the study is to determine the impact that the use of credit scores has on the availability and affordability of homeowners insurance and also any impact it has on racial or ethnic minorities,” said Lydia Parnes, director of the FTC’s Bureau of Consumer Protection.
Industry advocates said that most people actually benefit from their credit being factored in their insurance premiums, a technique that has grown in use over the past decade.
Charles Neeson, an executive with Ohio-based Westfield Insurance, said 75 percent of his policyholders pay less because of the use of credit scores, and only 8 percent pay more.
In North Carolina, a person’s credit history can’t be used as the sole factor in denying coverage or increasing a rate, but it can be reviewed in conjunction with other factors, according to the N.C. Department of Insurance. Some of the more traditional factors weighed in auto insurance premiums are an individual’s driving record, where the car owner lives and the type of vehicle.
The department received 50 complaints about the use of credit scores for auto and housing insurance since 2004, including 15 in 2007, said spokeswoman Kristin Milam.
Rep. Patrick McHenry, a Republican from Cherryville, said he doesn’t think credit scores should be used exclusively, but that they’re one of the most effective tools for determining risk.
Watt has signed onto two bills, one that would ban the practice of using credit scores, and another that would prohibit their use in cases where the FTC finds the scores are used as a proxy for race.
Watt said it was unlikely either version would become law this year, but he intended to weigh both and push for passage of one next year.
“I don’t think anyone should favor a system in which, either directly or indirectly, racial classifications are allowed to hinder a person in their daily lives, whether in consideration for employment, buying a home, getting credit, or purchasing financial products like automobile and homeowners insurance,” he said.
By Susanne Robicsek, Bankruptcy Lawyer in Charlotte North Carolina
See my article NC Rep Mel Watt Takes On Insurance Link To Credit Scores posted on Bankruptcy Law Network October 3, 2007.
See Jay Fleischman’s article Your Credit Report After Bankruptcy posted on Bankruptcy Law Network March 5, 2007
See Carmen Deluttri’s article How Important Is Your Credit Report After Bankruptcy? posted on Bankruptcy Law Network July 24, 2007
See Rachel Lynn Foley’s article I Am Thinking Of a Number posted on Bankruptcy Law Network December 14, 2007
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