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Proposed Legislation Aims To Halt Consumer Credit Profiling By Insurance Companies

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 control."

It remains to be seen whether the legislation will win enough votes to be passed into law.