OIR Commissioner McCarty Hails DOAH Ruling 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 (1/4/2007) - Florida Insurance Commissioner Kevin McCarty, today, welcomed a decision by the Division of Administrative Hearings regarding a challenge to the credit scoring rule promulgated by the Office of Insurance Regulation (Office).  The rule was filed in March of 2005 and approved by Gov. Bush and the Florida Cabinet.  It implements section 626.9741 F.S. which was passed by the Legislature and signed into law in June of 2003.
The rule does not prohibit the use of credit scores but requires information be submitted regarding how the information will be utilized and to show that it will not have a disparate impact on persons of any race, color, religion, marital status, age, gender,  income, or national origin.   Various insurance industry trade groups challenged the Office's authority to implement the rule, calling it an invalid exercise of delegated legislative authority.  While the Administrative Law Judge took issue with the failure of the rule to define the terms "race, color, national origin", and that it failed to clearly define the term "disparate impact", he approved the underlying authority and approach taken by the rule.
"After reviewing the decision I am pleased that the Administrative Law Judge agreed that the Governor and Cabinet do have the authority to prohibit the use of credit scoring if it unfairly discriminates," said McCarty, "and that he disagreed with the claim of the petitioners that we did not have the authority to define unfair discrimination in anything other than actuarial terms.  While he felt that the definition used was too vague, he clearly found that the Governor and Cabinet had the authority to define 'unfair discrimination' as it relates to the use of credit scoring in terms of having a disproportionate impact on certain protected classes if the definition was less vague."
The industry petitioners also argued that the information necessary to comply with the order was not at their disposal or that it would be impossible to gather the information.  McCarty applauded the judge's opinion that that argument is invalid.
"We respectfully disagree with the judge's deeming of the definition unfairly discriminatory as vague and not adequately defined in the rule.  However, he has made certain suggestions in this regard which we will review and may incorporate into the rule," said McCarty.  "This guidance by the judge may also be useful in an appeal of other issues regarding the challenge to the rule that we believe need to be remedied."
One public study on credit scoring found that one in four credit reports contains errors or omissions serious enough to disqualify consumers from purchasing a home, a car or getting a job.  And, in recent years, a national insurance company paid a multi-million dollar fine to settle state charges that it used negative credit information to deny or discourage applicants from obtaining automobile coverage. 
In addition to the new rule requiring all insurers to show the use of credit information does not cause any disparate impact, the filings must also include a complete description of the methodology utilized when using credit information.
Further, they must contain data showing what impact having little or no credit history would have on policyholders and also certification that the insurer will correct any errors in premiums charged to Floridians. 
The rule requires compliance with the Fair Credit Reporting Act, it mandates a biannual review of credit information when requested by the insured and the rule requires insurers to establish procedures for appeal by applicants whose credit was negatively impacted by divorce, death of a spouse or temporary unemployment.
The Informational Memorandum sent to all affected insurance companies regarding the rule can be viewed at 

DOAH Ruling on Credit Scoring