Interview: Evan Hendricks
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Should credit scoring be used, in your opinion, in insurance granting and pricing decisions?

Credit scores & credit reports 1. Why check your score? 2. Are you getting a FICO score? 3. Preapproved offers & scores 4. The problem of mixed files 5. When to call an attorney 6. Student loans & credit reports 7. Are credit scores colorblind? 8. Credit scores & insurance rates 9. Consumer protections

I think it's problematic that credit scoring is used in many, many ways for car and homeowners insurance. The industry is passionate in saying that the research shows that customers with low credit scores cause insurance companies more losses. But even there, I'm not sure to what extent that should justify the way that they use credit scoring for setting auto and homeowners insurance. It seems to me it should be based on standard underwriting criteria. But putting that philosophical debate aside, there's no question that it's a very important factor in setting those rates, especially for new applicants. And so, I think it's something that people don't understand intuitively but need to know because sometimes the credit score can be just as influential as your driving record when it comes to your auto insurance rate.

Consumer protection
What, in your opinion, should be done on the federal level to help protect consumers with regards to credit reports and scores?

There's very little in the way of enforcement by any of the federal agencies when it comes to credit reporting issues. The Federal Trade Commission is supposed to take enforcement actions against the credit bureaus. They've done a handful of cases about not answering the telephones, but they haven't gone to the heart of these problems.

And, the law is designed so that you, as a consumer, can only go to court after you've submitted your dispute to the credit bureaus and the credit bureaus have relayed it to the creditor and then the creditor failed to do a reasonable investigation. Then you go to court.

In the meantime, the whole thing about initial reporting from creditors to the credit bureaus means the creditors are supposed to report accurate information. But individuals can't go to court to enforce those rights, that's left to the banking agencies -- the OCC, the Federal Reserve and the others, maybe the FDIC -- those agencies have not taken any enforcement actions in 10 years. That's a glaring hole. When I told you that these companies don't care because they don't feel they have to, one reason is because those federal agencies are not doing their job and taking enforcement actions to make them care.

Congress has, since the law was enacted in 1970, done a major strengthening of the law for consumers in 1996 and they did another strengthening of the law in 2003, but the credit bureaus and many creditors on these issues are like naughty children. If you don't keep the boot on their neck, they're just going to continue to have procedures in place that disadvantage consumers. In other words, you give them wiggle room, they exploit it to disadvantage consumers. So they're going to need to have even more specific standards in place so consumers can get their errors corrected without having to go to court. The law basically will need to be strengthened again.