Commissioner Hails Supreme Court Decision on Credit Scoring

We respectfully submit that OIR has misinterpreted the state Division of Hearing Officer ruling, filed in a challenge by the Florida Insurance  Council and national insurance trades, as a "win." The hearing officer accepted insurance community arguments and struck down the rule, forcing OIR to start over. We also believe the Office is misinterpreting the U.S. Supreme Court decision and urge consumers and the media to read the opinion through the link below. We are offering this report and others to note OIR's strong opposition to credit scoring and are attempting to present a balanced FACTBook chapter on this issue.

Sam Miller, Florida Insurance Council  

TALLAHASSEE (06/12/2007) - Florida Insurance Commissioner Kevin McCarty hailed the United States Supreme Court's recent ruling on insurers' use of credit scoring.  The litigation involved two national auto insurers, Safeco Insurance Company of America, and GEICO General Insurance Company.  The case alleged that insurers used credit reports and took "adverse action" on policyholders without giving proper notice.

The Supreme Court, while finding that one of the insurers may have violated the Fair Credit Reporting Act, found that damages were inappropriate based on the facts of the case.  However, in writing for the Court, Justice David Souter asserted that insurers can be held liable for damages and penalties under the Fair Credit Reporting Act for failing to notify applicants if their rates are higher than would have been obtained based on a "neutral" credit report even if the higher rate imposed is at the inception of the policy.  

"This is a very important decision," announced Commissioner Kevin McCarty, "This will assist in Florida's efforts to limit insurers' use of credit scoring, and ensure full disclosure of how credit reports are being used."

Florida has been a leader on this issue and passed credit scoring legislation in 2003.  When a rule was adopted by the Florida Office of Insurance Regulation (Office) to enforce this legislation in 2005, after extensive public input, industry trade groups challenged its implementation.  In January, 2007, an administrative law judge ruled in favor of the Office on the substance of the disputed points, although he noted some vagueness in defining the terms "disparate impact" and "race, color and national origin."  The Office revised the rule to address the judge's concerns, and presented the revised rule to the Financial Services Commission during its June 12, 2007 meeting.

While the U.S. Supreme Court's decision was limited to the notification issue, Florida's efforts have been aimed at ensuring that insurers' use of credit reports does not negatively impact consumers based on race, religion, ethnicity, national origin, marital status, income-level, or place of residence.  Florida also will require insurers to supply all the information they used to develop any credit "models" and will make sure "models" are valid and do not unfairly discriminate.

"The ruling was a great first step," said Commissioner McCarty, "but we will not stop pursuing this matter until we are sure disadvantaged minorities in Florida are not being harmed by this practice."

For a copy of the U.S. Supreme Court's ruling please click the following link: 

U.S. Supreme Court on Credit Scoring