Credit scoring an issue in 2007

Even though 2006 is safely behind us, some sticky issues are on the horizon as we edge our way into 2007. Case in point is the pending Supreme Court cases of Safeco v. Burr and GEICO v. Edo. The cases are about notification requirements for consumers when credit scoring is used by insurance companies and 13 states have signed on to an amicus brief in support of the plaintiffs.

Notification debate
Consumers in the cases claim that insurance companies Safeco and GEICO violated the federal Fair Credit Reporting Act (FRCA). The consumers said that when a consumer’s credit information resulted in receiving a higher rate, insurers should have sent out “adverse action notices” required under FRCA and acted in “willful” disregard of the Act in not doing so.

FCRA adverse action notices are sent to consumers by banks, landlords and others when a consumer’s credit report has caused them to be denied for a loan or a lease. Thirteen insurance commissioners told the Supreme Court that they were filing their brief to “further their collective mission of protecting consumers by supporting interpretations of the FCRA that (a) put valuable information in the hands of consumers, (b) provide appropriate incentives for insurance companies that use consumer credit information to adopt procedures that assure compliance with the law, and (c) hold insurance companies accountable when they adopt policies that recklessly disregard consumer rights in contravention of the FCRA.”

The brief urges the Supreme Court to uphold the decisions of the 9th Circuit Court of Appeals in the Safeco and GEICO cases. States signing on to the Amicus brief include those from Arkansas, California, Georgia, Iowa, Kansas, Michigan, Montana, New Mexico, North Dakota, Oklahoma, Utah and Washington.

Proponents’ arguments
Generally the companies in question followed the guidelines of the Federal Trade Commission and deny any willful intent at disregarding the FRCA Act, insurers say.

The consumer notification controversy aside, the use of credit scoring has gone many long rounds in the fight to keep it as an underwriting or rating tool. Some states such as Michigan have sought to totally ban the use of credit scoring in underwriting or rating in 2006 — and that case is still pending. Michigan is not alone. Missouri and Minnesota officials have also taken positions opposing its use some form or other

Insurers have argued for years said that the use of credit scoring helps more consumers than it hurts by giving those who handle their finances responsibly the reward for doing just that. They say studies back them up on this premise.

This particular Supreme Court case targets the “notification” requirements under FCRA, but the overall issue of using credit scoring has more prickly prongs than this one case. Chances are the Supreme Court will settle this dispute in 2007, but I wouldn’t want to lay odds on how long other battles over the use of credit scoring will go on.

Topics Carriers Michigan