Texas Senators to File Bill Banning Use of Credit Scores

January 11, 2005

Calling the practice discriminatory and unfair, Texas State Senator Rodney Ellis of Houston announced he and Senators Gonzalo Barrientos of Austin and Eliot Shapleigh of El Paso will file a bill that bans credit scoring as a underwriting guideline for insurance.

Citing a recent study by the Center for Economic Justice (CEJ), Ellis says credit scoring leads to disproportionately higher premiums for minority and middle class Texans. “Credit scoring is discriminatory,” Ellis said, “Regardless of whether you do a study on it or not, most right-thinking people have a basic visceral notion that credit scoring is something that ought not be used in determining what somebody’s rate should be. “

Texas insurance underwriters commonly use scores based on credit ratings to determine how much to charge for insurance. The CEJ study concluded that this practice does not demonstrate a link between credit risk and actual claims.

“Being a month late on your Chevron bill should not dictate how much you pay to insure your car or yourself against damage or injury,” said Senator Gonzalo Barrientos, “And we all know credit scores are often rife with errors.”

Last session, the insurance reform omnibus bill that was passed in the House of Representatives included a provision that disallowed insurance companies from using credit scores as an underwriting guideline. But that provision was removed during conference committee. In its place, the Legislature gave power to the insurance commissioner to determine to what degree credit scoring can be used as a guideline. Ellis wants to go a step further, and make it illegal for credit scores to be used at all.

A study recently released by the Texas Department of Insurance shows a correlation between credit scores and claims. It also indicated that some minorities and low-to-moderate income policyholders tend to have lower credit scores.

The Senate begins the 79th legislative session Jan. 11, at noon.

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