For a decade now, all the major auto insurers have used a customer’s credit rating to some degree in determining premiums. They claim that it results in lower rates for “most” customers, and that the data prove that people with lower credit scores make more claims and for higher amounts. The FTC released a report this summer that validated the practice—but also confirmed an unpleasant truth critics have been saying for years: because a higher percentage of Hispanics and African-Americans have low credit scores, there’s a good chance they’re disproportionately affected.
Another article uses a side-by-side comparison that really shows the disparity: “Using credit scores is likely to mean that 64 percent of African Americans, 53 percent of Hispanics, 38 percent of non-Hispanic whites and 34 percent of Asians would pay higher premiums the FTC said.”
The practice was questioned at a House hearing on Tuesday, although it’s not clear whether anything useful was accomplished—the news reports have the usual routine of partisan soundbites that fall predictably on either side of the issue. California, Hawaii, Massachusetts and New Jersey have banned credit-based pricing, while many other states have passed laws that limit the extent to which insurers can rely on it.
“Credit-Insurance Link Debated” [Associated Press]
“Congress looks into credit based auto insurance rates” [McClatchy]
“Caution! The secret score behind your auto insurance” [Consumer Reports]