For Consumers

Kreidler issues emergency rule banning credit scoring for three years

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March 23, 2021

OLYMPIA, Wash. – Insurance Commissioner Mike Kreidler issued an emergency rule today prohibiting insurers from using credit scoring to set rates for personal property for three years. 

This immediate, but temporary, response is necessary to prevent discriminatory pricing in auto, renters and homeowner insurance in anticipation of the end of the federal Coronavirus Aid, Relief, and Economic Security (CARES) Act. The CARES Act expires 120 days after the president declares an end to the national emergency caused by the coronavirus pandemic.

“The insurance industry’s dependency on the discriminatory practice of credit scoring has always been unfair,” said Kreidler. “But given that the federal protections from plummeting credit scores could end soon, we need to take action now to protect the public.”

The federal CARES Act placed a temporary hold on the reporting of certain negative credit information. As a result, bureaus are currently collecting a credit history that is inaccurate for some consumers and producing unreliable credit scores. Because insurers rely on these credit scores to produce their scoring models and set rates for their policyholders, Kreidler believes these scoring models are now degraded and unreliable. He is taking this immediate action to protect consumers from discriminatory pricing. State insurance law prevents insurers from charging different rates to similar groups of people for the same coverage.

“It is discriminatory to use credit scores to set insurance rates because this practice results in low-income people and people of color paying more for insurance,” said Gov. Jay Inslee. “Because the CARES Act prohibits some lenders and creditors from reporting delinquent accounts, the CARES Act actually shines a light on the dubious use of credit scores altogether and demonstrates that credit scores are an inaccurate evaluation of creditworthiness.”  

Kreidler said he believes that credit scoring is inherently unfair, especially to people with lower incomes and communities of color. In Washington state, insurers charge good drivers with low credit scores nearly 80% more for mandatory auto insurance. He proposed legislation to ban credit scoring permanently, but his bill was reworked by the insurance industry and failed to pass out of committee by the cutoff deadline of March 9. 

Kreidler’s emergency rule takes effect immediately and lasts for 120 days. He is undertaking standard rulemaking to maintain these protections after the emergency rule expires. 

Read more about Kreidler’s emergency rule to temporarily ban insurers’ use of credit scoring.