Insurance commissioner bans credit scoring for three years

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On March 23, Washington state insurance commissioner Mike Kreidler issued an emergency rule prohibiting insurance companies from using credit scores to determine rates on automobile, homeowners and renter’s insurance policies.

The order will be in place for the next three years and is effective immediately, according to a press release from the Washington State Office of the Insurance Commissioner.

The ban is in preparation for the eventual end of the federal CARES Act, which had placed a temporary ban on reporting of negative credit information.

Kreidler argues that once the CARES Act expires and the protections from negative credit reporting are lifted, there will be a huge volume of negative credit corrections, lowering credit scores and increasing insurance premiums for countless Washington drivers, renters and homeowners.

“The results of the CARES Act is that all credit bureaus are collecting a credit history that is objectively inaccurate for some customers,” Kreidler said. “This untrustworthy credit score degrades any predicative value that may be found in a consumer’s credit-base insurance score.”

The practice of using credit scores to determine insurance rates has been a hotly contested issue around the country, and has been outlawed entirely in four states. It is seen by many as unfairly discriminatory to people with lower incomes and communities of color.

“There is evidence that the negative economic impacts of the pandemic have disproportionately fallen on people of color,” Kreidler said. “When the CARES Acts protections are eliminated, and negative credit information can be fully reported again, credit histories for people of color will have been disproportionately eroded by the pandemic.”

A bill prohibiting the use of credit scores to determine insurance rates was introduced in the state Legislature by the request of the insurance commissioner on December 10, 2020, but was amended heavily and is now stuck in committee in the Senate.

The bill, 5010, received widespread support from civil rights groups like the NAACP, WA Build Back Black Alliance, AARP and many others.

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

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