Federal Bill would restrict insurers' use of credit scores.

Legislation filed in March by U.S. Rep. Luis V. Gutierrez, D-Ill., would amend the Fair Credit Reporting Act to preclude insurers from using credit information in rating and underwriting decisions wherever government agencies find the practice to be discriminatory.

The bill, H.R. 5633, would bar credit-based insurance scoring, a common practice in personal fines property/casualty insurance, if there is a government finding of discrimination or when credit information could be used as a "proxy" for race or ethnicity. Gutierrez said that a 2007 Federal Trade Commission report found racial proxy effects in pricing for collision, comprehensive and bodily injury automobile insurance policies.

"For families who are only beginning to establish credit, including minority and immigrant communities, this practice puts them in a difficult and unfair financial position," he said.

The bill was referred to the House Financial Services Committee. It is co-sponsored by committee chairman, Rep. Barney Frank, D-Mass., and the chairman of its Subcommittee on Oversight and Investigations, Rep. Melvin L. Watt, D-N.C. Watt chaired hearings on the FTC report last October.

The report found credit-based scores correlated strongly with the number of claims a policyholder is likely to file, as well as the aggregate cost of those claims. The report also found that credit-based scores are distributed differently among racial and ethnic groups, with blacks and Hispanics being more likely, on average, to have lower scores.

Property/casualty insurance trade groups like the National Association of Mutual Insurance Companies, American Insurance Association and the Property Casualty Insurers Association of America blasted the legislation.

Neill Alldredge, NAMIC's vice president for state and regulatory affairs, said that "contrary to what the authors of this legislation assert, this bill is not in the best interests of consumers." David Snyder, assistant general counsel for the AIA, said "credit scoring has helped improve auto and homeowners markets." And David A. Sampson, PCI's president and chief executive officer, disputed the notion that credit scores serve as a "proxy" for race, saying it isn't possible to determine an applicant's race or ethnicity solely from looking at a credit score.