Proposed Credit Scoring Rules Abandoned, Revised Versions Coming Soon
By: Tom Crabb
Following a rule challenge that continued for over a year, the OIR has abandoned one set of proposed credit scoring rules but will soon propose another. In June 2007, the OIR through the Financial Services Commission proposed administrative rules related to the use of credit reports and credit scores and unfair discrimination in the use of credit reports or credit scores by personal lines residential and motor vehicle insurers. These proposed rules would have required certain information to be submitted with rate filings, including a description of the credit scoring methodology, the effect of particular scores or ranges of scores on premiums and decisions whether to insure, and the criteria determining when each reason will be given that may be cited to the consumer as the explanation for an adverse decision from the insurer based on information contained within a credit score or report. In addition, the rules would have required insurers desiring to make adverse decisions based on credit scores and reports to provide appeals for applicants or insureds and periodically review the credit history of consumers adversely affected. No credit scoring methodology could be used unless demonstrated to be a “valid predictor” of the insurance risk to be assumed by the insurer. A separate rule was intended to ensure that rates associated with the use of credit scores and reports are not unfairly discriminatory based on race, color, religion, marital status, age, gender, income, national origin, or place of residence. Specifically, insurers were to demonstrate that certain subcategories of persons were not “disproportionately impacted” by the insurer’s credit scoring methodology.
In August 2007, shortly after the initial publication of the proposed rules, an administrative challenge was filed by the Florida Insurance Council, American Insurance Association, Property Casualty Insurers Association of America, and National Association of Mutual Insurance Companies, claiming numerous defects in both the substance of the rule and procedure by which it was proposed. Among other things, the petitioners contended that numerous provisions of the proposed rules were not authorized by statute. For example, the proposed rules would prohibit the use of credit scores and reports for hurricane insurance rates, require reporting by insurers showing no correlation of adverse decisions based on zip code, and notification to adversely affected insureds of their right to review their credit scores. The rule challenge also took issue with the proposed rule’s definitions of “unfairly discriminatory” and “disproportionate impact.” The proposed rules also required that insurers provide information about how they would treat certain repeated inquiries for home and auto financing not coded as such on the credit report or score.
After over a year of litigation, on September 26, 2008 the OIR stipulated that it had no intention to adopt the proposed rules at issue in the case. By that statement, the proposed rules were effectively withdrawn by the OIR. The OIR has, however, already filed notice of a rule development workshop to be held on October 27, 2008. As of the date of publication of the Florida Insurance Report, a draft of the new proposed rules was not available. We will make it available on our website, www.radeylaw.com., as soon as it becomes available. The OIR has long opposed the use of credit scores and history by insurers for rating and underwriting purposes and the new proposed rules will likely continue that trend. For more information about this topic, please contact myself or any member of our Insurance Team.