AUSTIN—The House Insurance Committee met today to consider legislation (HB 23) to ban the use of credit scoring by insurance companies. The bill is authored by a bi-partisan group of lawmakers representing virtually every part of the state.

At today’s hearing a broad coalition of advocacy groups and a large contingent of citizens testified in favor of the bill.

“This comprehensive coalition of citizens, lawmakers, and advocates indicates the depth and breadth of support for ending the unfair use of credit scoring by insurance companies,” said Alex Winslow, Executive Director of Texas Watch. “Families from all over our state have been subject to this flawed and discriminatory tool for too long. It is time for the legislature to take action to protect Texas policyholders.”

The coalition of organizations includes Texas Watch, League of United Latin American Citizens (LULAC), Mexican-American Legal Defense and Education Fund (MALDEF), NAACP, Texas Public Interest Research Group (TexPIRG), Center for Economic Justice, Public Citizen, Consumers Union, and Common Cause.

The legislation comes on the heels of two recent reports from the Texas Department of Insurance showing that the use of credit scoring disproportionately impacts minorities and middle class Texans [1], and that other established rating factors are more predictive than credit scoring [2].

“Credit scoring has an unfairly negative impact on African Americans and other minorities,” said Gary Bledsoe of the NAACP. “We should not allow insurance companies to continue to use a tool that is inherently discriminatory.”

“MALDEF is concerned about the discriminatory impact credit scoring has on Latinos, and we believe the legislature should take action to ban this practice outright,” said Luis Figueroa, MALDEF Legislative Staff Attorney.

The groups also pointed out that credit reports rely on notoriously flawed data. A nationwide study last year by U.S. PIRG found that 79 percent of all credit reports contain errors.[3]

“A system that relies on bad inputs will inevitably produce bad outputs,” said Luke Metzger, Public Interest Advocate for TexPIRG. “Credit scores can most accurately be described as ‘garbage in, garbage out’.”

Insurance companies continue to argue that credit scoring reflects an individual’s likelihood to make poor financial decisions and that they are more likely to file a claim. The coalition of groups said Monday that this was an absurd assertion.

“46 percent of all bankruptcies are caused by the overwhelming cost of major medical bills, [4]” said Birny Birnbaum, Executive Director of the Center for Economic Justice. “It is insulting to suggest that a person who has been forced into bankruptcy by the flood of bills that follows a serious illness or injury is less responsible financially.”

In 2003, the Scripps Howard Texas Poll surveyed Texans on the issue of credit scoring. The survey found that 68 percent of Texans support a ban on credit scoring.[5]

“We hope lawmakers will stand with their constituents who overwhelmingly support a ban on the unfair use of insurance credit scoring,” said Winslow

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[1] “Report to the 79th Legislature: Use of Credit Information by Insurers in Texas,” Texas Department of Insurance, 12/30/04, see http://www.tdi.state.tx.us/general/pdf/creditrpt04.pdf.

[2] “Supplemental Report to the 79th Legislature: Use of Credit Information by Insurers in Texas: The Multivariate Analysis,” Texas Department of Insurance, 1/31/05; see http://www.tdi.state.tx.us/general/pdf/credit05sup.pdf.

[3] “Mistakes Do Happen: A Look at Errors in Consumer Credit Reports,” U.S. PIRG, June 2004, at page 4; see http://uspirg.org/uspirg.asp?id2=13649&id3=USPIRG&.

[4] “Illness and injury as contributors to bankruptcy,” Health Affairs, February 2005; see http://content.healthaffairs.org/cgi/content/full/hlthaff.w5.63/DC1.

[5] “Homeowners’ Insurance,” The Scripps Howard Texas Poll (Spring 2003), 5/16/03, at question 4.