Nevada Lawmakers Consider Consumer Credit Use Regulations

Nevada lawmakers are considering a bill that would stop insurers from considering the opening and closing of credit accounts when setting rates.

Ed Rathje spent three years trying to figure out why his credit history was preventing him from getting better car insurance rates, but never got a decent answer.

The state should step in if insurers can’t give a good explanation of how they use a consumer’s credit history to set rates, Rathje told Nevada lawmakers last week, in urging approval of AB404.

“I feel sorry for those who don’t have an engineering degree and an MBA in quantitative methods, and who maybe are bashful about standing up against big insurance companies, who suffer because of this,” said Rathje, who manages a Reno flight simulation school.

A consumer’s credit history is one of many factors insurers consider when setting rates. AB404, sponsored by Assemblywoman Debbie Smith, D-Sparks, would ban only the consideration of the opening and closing of accounts. Insurers still could consider credit scores, unpaid debts and other factors.

“They can’t tell you the rules of the game,” Smith told the Senate Commerce and Labor Committee. “If they can’t tell the consumer how they use that information, then how do you the consumer know how to get the best rate?”

Insurance companies representatives opposed the bill, saying that by using such data insurers can do a better job of predicting who is more likely to file a claim. That, in turn, makes the company more competitive and can lead to lower rates, said Joe Guild, a lobbyist for State Farm Insurance.

“Credit information, which is part of an insurance score, is highly predictive of future claims filing,” said Guild. “That’s why insurance companies use it.”

State Farm has invested millions of dollars on a credit-based insurance scoring system, and that the company’s customers benefit from that system, said Guild. AB404 would impose “arbitrary restrictions” on the use of that data, making Nevada’s insurance market less competitive, he said.

But while people can monitor and correct inaccuracies in their credit score, it’s much harder to understand or change your insurance score, said Rathje.

“It’s a black box, proprietary process,” said Rathje. “It’s not credit history. It’s a credit electronic Ouija board.”

Despite excellent credit and 40 years of credit history, Rathje was rated poorly by insurance companies, penalized for opening accounts and other factors he said made no sense and were based on improper use of statistics.

Without a legal prohibition, consumers have no recourse for such errors, he said.

Smith told committee members that a consumer who accepts a bank’s offer to upgrade from a gold to platinum level credit card may not realize that will involve closing and opening another account — and could inadvertently raise their auto insurance rates.

No insurance company has been willing to give a good explanation of how the scoring process works, said Smith. Consumers can be penalized for opening too many accounts or not opening an account soon enough, for having too many requests for credit or having none at all, she said.

Commerce and Labor Chairman Randolph Townsend, R-Reno, asked Smith to bring the committee information about similar laws in other states.