Archive for Thursday, January 23, 2003

Lawmakers examine ‘abusive’ practice of credit scoring

January 23, 2003


— The typical "credit scoring" nightmare story is when a recent widow finds her insurance premiums have gone up because the family's credit was established by her husband.

Without a credit history of her own, the insurance company has decided the woman is a risk and needs to pay more.

Kansas Department of Insurance officials say this actually happens, and a fight is on before the Legislature on what to do about the practice of insurance companies using a person's credit history to determine insurance rates.

"There is so much abuse going on by the insurance companies, credit scoring needs to be outlawed," state Sen. Paul Feliciano, D-Wichita, said.

Feliciano said complaints about credit scoring were skyrocketing, and the practice often victimizes elderly people, who fall behind on certain payments as they deal with major illnesses.

"They get behind on their bills, and insurance companies are using that as an issue to cancel their policy or increase it by four or five times." he said.

Credit scoring has become one of the top consumer issues across the nation. Since 2002, credit-scoring legislation has been introduced in 30 states. Maryland has banned credit scoring in homeowners insurance, while Hawaii has had a longtime prohibition against credit scoring in auto insurance.

But most other states have struck a middle ground between an outright ban and tighter regulation.

In Kansas, a task force on credit scoring was formed last year and recently delivered its recommendations to the Legislature. The task force rejected a ban on credit scoring but said lawmakers needed to approve some consumer safeguards.

Insurance Commissioner Sandy Praeger has said she planned to introduce legislation soon that would provide those safeguards.

Some of the protections the task force recommended: Insurers should advise and explain to consumers if credit scoring is used, then file their credit-scoring methods with the Kansas Department of Insurance. The safeguards also would prohibit the use of credit information on income, gender, address, zip code, ethnic group, religion, marital status or nationality of the consumer.

Feliciano, who served on the task force, said the recommendations didn't go far enough in protecting policy holders.

But state. Sen. Ruth Teichman, R-Stafford, chairwoman of the Senate committee that will consider credit-scoring legislation, said she was pleased with the task force report.

Teichman, who also served on the task force, said that at the start of the meetings she wanted to prohibit credit scoring.

But, she said, after studying the issue, she believes that using a credit score does have a correlation to measuring the likelihood of insurance losses.

Insurance industry representatives told the task force that credit scoring has a positive effect for a large portion of consumers because it allows insurers to underwrite and rate risks with greater accuracy.

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