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Insurance Based Credit Scoring Addressed at House Hearing on FCRA

The House Financial Services Committee's Subcommittee on Financial Institutions and Consumer Credit held a hearing on Wednesday, June 4, 2003, regarding the pending reauthorization of...
June 10, 2003

The House Financial Services Committee's Subcommittee on Financial Institutions and Consumer Credit held a hearing on Wednesday, June 4, 2003, regarding the pending reauthorization of the Fair Credit Reporting Act (FCRA). Twenty-two witnesses testified, including representatives of the Federal Reserve, the Federal Trade Commission, state officials, and representatives of credit firms, consumer and business groups.

Testimony during the hearing centered on broad issues relating to the pending reauthorization of the Fair Credit Reporting Act (FCRA). Congress must decide whether or not to reauthorize provisions of the FCRA that expire January 1, 2004. This was one of a series of hearings being held in the House and Senate. PIA National attended.

One of the key witnesses at this hearing was Gregory V. Serio, Superintendent of Insurance for the State of New York. During his testimony, Superintendent Serio concentrated on the use of credit based insurance scoring. He provided an overview of the current status of state legislation across the nation. Serio said this year a majority of state legislatures have considered bills to regulate or restrict the use of credit scores.

To date, at least eleven states have adopted legislation and a dozen states have legislation pending. Nine of the state laws that were enacted this spring are based on the National Conference of Insurance Legislators (NCOIL) Model, he noted. Serio said while privacy rules insome states have unique aspects, for the most part the states have achieved "operational uniformity," meaning an insurer can operate across the country utilizing a single privacy policy."

"In credit scoring, the states have devoted tremendous resources to determining if there is a relationship between a credit score and risk of loss, and equally important, to determining if the use of credit scores is fair to consumers. In privacy, the states have implemented strong consumer protections in a fair and 'operationally uniform' manner."

Full testimony of Gregory V. Serio

What It Means to Agents:  Credit based insurance scoring and how it will be regulated under FCRA is an emerging issue for agents in every state. At issue are key preemption previsions in the current law, and the debate is centered on whether or not these should be renewed. Some believe states should be allowed to enact more stringent statutes on credit scoring, while others maintain uniform standards under FCRA should preempt state statutes.

PIA National believes that privacy concerns should be dealt with in an overall uniform framework that guides the regulatory actions of each of the financial services sectors rather than through an industry-by-industry approach. We believe consumers should have the right to receive notice giving them the ability to "opt out" of any information sharing proposed by a financial institution with whom they do business, including information shared within an affiliated company.

For additional information contact Pete Bizzozero at peterbi@pianet.org