|Interview: Evan Hendricks
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scores & insurance
credit scoring be used, in your opinion, in insurance granting and pricing decisions?|
|Credit scores & credit reports|
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.
in your opinion, should be done on the federal level to help protect consumers
with regards to credit reports and scores?
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.
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.
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