Editor’s Note: Credit scoring an issue in 2007

Even though 2006 is safely behind us, some sticky issues are on the horizon as we edge our way into 2007. Case in point is the pending Supreme Court cases of Safeco v. Burr and GEICO v. Edo. The cases are about notification requirements for consumers when credit scoring is used by insurance companies and 13 states have signed on to an amicus brief in support of the plaintiffs.

Notification debate

Consumers in the cases claim that insurance companies Safeco and GEICO violated the federal Fair Credit Reporting Act (FRCA). The consumers said that when a consumer’s credit information resulted in receiving a higher rate, insurers should have sent out “adverse action notices” required under FRCA and acted in “willful” disregard of the Act in not doing so.

FCRA adverse action notices are sent to consumers by banks, landlords and others when a consumer’s credit report has caused them to be denied for a loan or a lease. Thirteen insurance commissioners told the Supreme Court that they were filing their brief to “further their collective mission of protecting consumers by supporting interpretations of the FCRA that (a) put valuable information in the hands of consumers, (b) provide appropriate incentives for insurance companies that use consumer credit information to adopt procedures that assure compliance with the law, and (c) hold insurance companies accountable when they adopt policies that recklessly disregard consumer rights in contravention of the FCRA.”

The brief urges the Supreme Court to uphold the decisions of the 9th Circuit Court of Appeals in the Safeco and GEICO cases. States signing on to the Amicus brief include those from Arkansas, California, Georgia, Iowa, Kansas, Michigan, Montana, New Mexico, North Dakota, Oklahoma, Utah and Washington.

Arkansas Insurance Commissioner Julie Benafield Bowman said in a statement released by the Arkansas Insurance Department that she felt it was important to join in the filing of the brief as all consumers deserve to know if something in their credit score has resulted in higher rates for their auto insurance.

Generally the companies in question followed the guidelines of the Federal Trade Commission and deny any willful intent at disregarding the FRCA Act, insurers say.

This particular Supreme Court case targets the “notification” requirements under FCRA, but the overall issue of using credit scoring has more prickly prongs than this one case. Chances are the Supreme Court will settle this dispute in 2007, but other battles over the use of credit scoring will likely crop up for some time to come.