Most of us aren’t aware that our credit
score is directly related to the rate auto insurance companies charge for
coverage. Now the practice is being
challenged by legislation introduced in the House of Representatives.
Massachusetts, Hawaii and
California are the only states that have banned auto insurers from structuring
their fees on a customer’s credit history.
Insurance rates can double if a person has declared bankruptcy or has a
history of late payments. Even someone
with an average credit history can pay as much as 70% more than a person with a
credit history ranked at the top of the scale.
The new legislation, which has
been introduced by Reps. Hansen Clarke (D-Mich.), John Conyers (D-Mich.) and
Bennie Thompson (D-Miss.), bans credit-based insurance rate fluctuations, as
well as the practice of denying someone coverage based on their credit history.
The bill proposes an amendment to the Consumer Credit Act that would prevent
auto insurers from obtaining credit reports for prospective customers.
The legislation faces a barrage
of opposition from insurers, who say consumer credit ratings are a good way of
assessing their risk. According to them,
consumers with lower credit scores file more claims and make claims for higher
amounts. Oftentimes, people are rejected for auto insurance altogether because
of low credit scores.
Representative Clarke says that
credit profiling unfairly penalizes people who’ve been hit hard by high
unemployment and the recession. His
state of Michigan has one of the highest rates of unemployment in the nation
and correspondingly, the highest auto insurance rates nationwide.
Representative Conyers stated on
his Facebook page that "Auto insurance rates should be based on your
skills and responsibility behind the wheel, not extraneous factors outside your
It remains to be seen whether the
legislation will win enough votes to be passed into law.