New Legislation Introduced to Block Insurers from Using Credit Scores

So, you’ve never been in an accident and don’t have any outstanding tickets, but your insurance premium just went up 25%. You are furious and can’t figure out why your rates went up so much. Does this sound familiar?

This might be due to something you never even thought of, your credit score. Did you know insurers have been using credit ratings to determine rates for years? Even for good drivers with no accidents and no tickets can pay more than average rates, all because of a bad credit score.

However, there is hope for good drivers with bad credit, that feel insurers unfairly target them. Recently, freshman representative Rashida Tlaib introduced some promising new legislation. The new legislation would prevent insurance companies from using a person’s credit rating to determine rates. This is something many consumer advocate groups have called on for years, but Congress has been slow to put forth any legislation, until now.

Since the great recession of 2009, millions of people wound up with damaged credit. This was due to a number of factors, including the loss of a home, vehicle, or job. People that were in their most vulnerable time financially suddenly had to pay more for loans and even auto insurance. For good drivers, it just seems unfair.

Several States have Banned the Use of Credit Scores as a Factor in Setting Car Insurance Rates

According to credit scores can affect premiums a lot. One recent study showed consumers with bad credit can pay double for car insurance, depending on the insurer. Bad credit is usually a score that is below 600. Several states have already banned the use of credit scores as a way of factoring in rates. These include California and Michigan. Some of the most expensive auto insurance rates in the nation are found in Michigan, where many motorists can pay over $5,000 per year for coverage. As you might suspect, most residents can’t afford those expensive premiums.

The other two states that have banned credit score as a rating factor are Massachusetts and Hawaii. Now, representative Talib wants a national law that eliminates this practice for good. More than ten years ago, Maxine Waters had a similar bill proposed, that also included overhauling the credit reporting system, but it did not go through. Now Representative Tlaib is taking up the fight again.

One of the reasons Tlaib is fighting so hard for this new legislation is because her local Michigan constituents are hurting. Michigan has some of the highest auto insurance rates anywhere in the country, and also a lot of poverty. People that are making $10 per hour can’t afford to pay $300 a month for basic car insurance coverage.

Tlaib thinks eliminating the use of credit is one step she can take to ease the escalating costs of automobile insurance in the state. She stated. “this is one of those issues that brings everyone together. People don’t want their private credit rating given to insurers, and then that information used to set rates. It is unfair.” This aggressive action by representative Tlaib has rankled some conservative members in Congress, who think the private financial sector is regulated enough as it is already.

She does, however, have some people backing her legislation. Tlaib has already collected multiple co-sponsors for her new bill. These include freshman representative Alexandria Ocasio Cortez, Ilhan Omar, Ayanna Pressley, Emanuel Cleaver, and Cedric Richmond. She hopes in the near future to get the entire democratic base to support her legislation. Tlaib sent an open letter asking lawmakers for support, that stated, “I’m fighting for all consumers, to end this exploitative practice. History shows people that are marginalized the most, that have less access to wealth are the very ones hurt by auto insurance pricing that is based on credit scores.

Car insurance companies have a big lobbying arm in Washington D.C. and plan to fight hard to prevent this new legislation from passing. Most insurers are already feeling profit pressures and eliminating this new law if put into place, could cause some insurer to go out of business. It will be a long fight that will play out in the halls of Congress, most likely for years to come. As for now, this practice is still legal in 46 states across the U.S. 

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Patricia Hernandes