adopt a temporary ban on insurers use of credit scoring. A virtual public hearing took place on Nov. 23 at 9:30 and has been archived on TVW (www.tvw.org).Commissioner Kreidler issued an emergency rule banning credit scoring for three years. The Thurston County Superior Court recently ruled that there was not sufficient evidence of an emergency to adopt the rule in this manner. Commissioner Kreidler is now following the normal rule-making process to
In response to testimony he heard during the hearing, Commissioner Kreidler requested additional information from insurers. The responses are due December 20.
Legislation to ban credit scoring
He asked the state Legislature to ban insurers' use of credit scores when determining how much you pay for auto, homeowners or renter insurance.
His bill had a hearing in the Senate Committee on Business, Financial Services & Trade (www.tvw.org). Later, the committee voted on an amended version that Kreidler did not support.
Watch a podcast about the amended bill featuring Commissioner Kreidler: The Fight to Stop the Use of Credit Scores to Set Insurance Rates (www.youtube.com).
Support for Senate Bill 5010
What is credit scoring?
Currently, insurance companies are allowed to use credit information when deciding whether or not to offer someone insurance and to calculate how much to charge them.
Credit scores, along with other factors including where you live, your claims history, driving record and age, are used by insurers in a secret formula to create an "insurance score" they say predicts the likelihood you will file a claim.
Have you been impacted by credit scoring?
Many people are shocked when they find out their credit score is the reason their insurance costs went up. If this has happened to you, we want to hear from you! Read stories from consumers and agents (PDF, 245KB) on their experiences with credit scoring.
What's wrong with credit scoring?
Commissioner Kreidler believes credit scoring is unfair. Insurers say that credit or insurance scores are blind to race or income, but he believes the practice has a disparate impact on people with lower incomes and communities of color.
The federal government recognized the impact of the coronavirus pandemic on peoples’ credit scores and limited how financial institutions can use them (www.consumerfinance.gov) for many people under the CARES Act (www.treasury.gov).
A 2020 report from the Consumer Federation of America (www.consumerfed.org) found that good drivers in Washington state with poor credit are charged 80% more on average than a good driver with excellent credit.
Credit scoring discriminates and it's unfair
The most common reasons people struggle financially are due to events outside of their control — unemployment, natural disasters and medical expenses. For many, the impact is felt for generations.
We are in the middle of a catastrophic pandemic that is hitting people with low incomes and communities of color hardest. They will bear the repercussions for months and years to come. Below are some examples of racial disparities in credit scores, unemployment, income and health insurance:
- One in five Black people have a credit score below 620, compared to 1 in 19 White people (www.federalreserve.gov). A credit score helps lenders determine how likely you are to repay a loan. Your score affects how much you can borrow, how many months you have to repay it, and the interest rate you're charged. Good credit scores range from 670 to over 800.
- In 2016, 32% of Black people have no credit score, compared to 15.6% of White people. (www.urbaninstitute).
- A 2015 report by the Consumer Federation of America (www.consumerreports.org) showed that, on average, drivers with a “good” credit score paid $214 more per year than drivers with the best credit score. That figure doesn’t factor in their driving record. The study found that in Washington state, drivers with excellent credit but a conviction for driving under the influence (DUI) paid $847 less in insurance premiums than a driver with a clean record but poor credit.
Unemployment in Washington
- From March to August 2020, 57,865 Black people and 121,955 Latino people filed for unemployment. (www.esd.wa.gov).
- 6.7% of Black people have filed for unemployment in Washington state, compared to 3.1% of White people.
Poverty in Washington
- 20% of Black people in Washington state in 2018 had income below the poverty line, compared to 8% of White people. (www.kff.org)
Uninsured in Washington
- The uninsured rate in Washington state is 8%. For Black people, it is 11% and for Latino people it is 19%.