Using credit scores as a factor in determining automobile-insurance eligibility and premiums is a standard industry practice. For years, insurers have maintained that a person’s scores are a predictor of whether – and how often – someone will file an auto-insurance claim.
And for years, consumer groups have urged state legislatures and the federal government to see the flaws. Consumer advocates say using credit scores to set insurance rates unfairly hurts African-Americans and Latinos because those groups tend to have lower credit scores and thus end up paying more for their auto insurance.
The Federal Trade Commission recently released a study that largely sides with the industry.
The FTC, using prior research, public comments and industry data, concluded that credit scores do predict the number of claims consumers file and the total cost of those claims.
The Consumer Federation of America, the National Fair Housing Alliance, the National Consumer Law Center and the Center for Economic Justice issued a statement criticizing the methodology.
“The FTC’s approach to collecting data for the analysis is like the federal government trying to do a study on the health impacts of tobacco use with data selected by tobacco companies for the study,” said Allen Fishbein of the Consumer Federation of America.
One of the five FTC commissioners, Pamela Jones Harbour, also took issue with the agency’s findings.
Commissioner Jon Leibowitz, who voted to release the report, said, “The differences in credit-based insurance scores … are a disturbing reminder that our society is – still – not race blind, and that vestiges of our history of discrimination remain.”
“We believe scores reduce subsidization of bad risks by good ones, meaning most consumers pay less for insurance,” said David Snyder, vice president and assistant general counsel for the American Insurance Association.
Still, pressure from consumer groups has led many states to limit how auto insurers use people’s credit history.
Certainly consumers should practice good financial habits. But should someone pay more for auto insurance because he or she lost a job and couldn’t pay his or her credit-card bill?
The FTC still couldn’t determine why there is correlation between low credit scores and the increased likelihood that someone will file an auto-insurance claim.
FTC Commissioner Harbour said the agency failed to provide a more “balanced discussion of the benefits and detriments of using credit scores and credit-based insurance scores.”
On that point, I concur.
Contact Michelle Singletary c/o The Washington Post, 1150 15th St. NW, Washington, DC 20071 or singletarym@washpost.com.
