Consumer, Civil Rights Groups: FTC Credit Score Report is Biased

July 24, 2007

Representatives of consumer and civil rights organizations have condemned a congressionally-mandated report on insurance credit scoring by the Federal Trade Commission (FTC) as biased insurance industry propaganda. According to a statement released by the National Fair Housing Alliance, the groups called for Congress to reject the defective study and ban the use of credit scoring in insurance.

The groups cited previous studies by the Missouri and Texas Departments of Insurance, which they say have found that insurance scoring discriminates against low income and minority consumers because of the racial and economic disparities inherent in scoring. The Missouri study concluded that a consumer's race was the single most predictive factor determining a consumer's insurance score and, consequently, the consumer's insurance premium.

According to the announcement, the relationship between insurance credit scores and race is so strong that even though the FTC used data handpicked by the industry, it found that credit scoring discriminates against low income and minority consumers, and that insurance scoring was a proxy for race.

Representatives of the Consumer Federation of America, the National Fair Housing Alliance, the National Consumer Law Center, and the Center for Economic Justice said the FTC study is fatally flawed because the insurance industry controlled the data used in the analysis. Instead of requiring the submission of comprehensive policy data by a large number of insurers, they claim the FTC used data handpicked by the insurance industry.

The groups maintain the FTC study also confirms that, despite growing reliance on credit-based insurance scores, scant evidence exists to prove there is a meaningful connection between a consumer's score and auto insurance losses.

The groups also dismissed the report for failing to respond to the Congressional mandate to examine the impacts of insurance credit scoring on the availability and affordability of auto and homeowners insurance, and for parroting insurance industry propaganda about insurance credit scoring. Section 215 of the Fair and Accurate Credit Transactions Act of 2003 required the Federal Reserve Board and the FTC to study the impact of credit scoring on the availability and affordability of credit and insurance and to determine whether credit scoring was truly related to insurance losses or simply a proxy for race, income or other factors.

The groups called on Congress to reject this study, which they say is flawed and biased, and to tell the FTC to conduct an objective, independent study. They also called on Congress to ban the use of insurance credit scoring based on the available evidence of racial discrimination.

SOURCE: National Fair Housing Alliance