State Auditor says Farmers Alliance must tell consumers how credit scoring adversely affects their policies and premiums
Type and number of credit cards can negatively impact credit scores
HELENA - State Auditor John Morrison filed an administrative action Tuesday against Farmers Alliance Mutual Insurance for alleged violations of the law involving credit scoring.
Morrison alleges that Farmers Alliance failed to provide a Bozeman consumer with specific reasons for increasing her insurance premiums after she had submitted a request to the company in writing.
"Credit scoring is a consumer issue of national concern, but Montana law allows for its use," said Morrison, Montana's Insurance Commissioner. "If companies are going to use it, consumers have the right to know how it is being used and how it affects their premiums."
The woman referenced in the adminstrative action, a professor at Montana State University, received a large automobile insurance rate increase. She was directed by her insurer, Farmers Alliance, to look at her credit rating and credit score as potential causes for the rate increase.
A credit score is a number insurance companies assign consumers based on credit experience, which includes the number and types of credit cards used, the number of outstanding credit balances, the number of recent credit inquiries and the age of a consumer's credit accounts.
Choice Point, a credit scoring entity used by many insurers, reported significantly different credit scores for the consumer and her husband. The woman's credit score was 188 points lower than her husband's.
In its notice of proposed agency action, the State Auditor's Office asserts that there has been no change to the couple's financial status over the past two years that could justify a change in financial stability as determined by the insurance company. In fact, the State Auditor's Office found that after more than 20 years of marriage, the consumer and her husband's credit reports were very favorable and nearly identical. The woman's report noted a "lack of reported information on oil company accounts." She has a J.C. Penney's card her husband does not have and he carries a gas company credit card she does not have.
Choice Point provided the woman with a general explanation of items that affect credit scores, including the following:
Consumers who use retail accounts to buy merchandise have more insurance losses. Retail accounts include clothing stores, jewelers, furniture, mail order and variety stores such as J.C. Penney's and Sears.
Consumers who have established accounts with oil companies have better loss experience. This includes cards issued by gas/service stations such as Texaco, BP, etc.
The woman's lower score in 2002 apparently adversely affected her insurance premiums. Despite her written request, Farmers Alliance failed to provide the woman with any explanation for the rate increase as required by law.
To date, there has been no explanation for the differences in the individuals' scores and no explanation for what factors adversely affected the woman's rates. Provisions in Choice Point's general explanation of credit scoring could lead a consumer to believe that not having a gas card or having a department store credit card could raise a consumer's insurance premiums. Alliance's failure to provide a specific explanation for the rate increase does not allow a consumer to be certain what impacts their premiums.
"Insurance companies sometimes adversely treat consumers based on the types of credit cards they carry," Morrison said. "It's important for consumers to know the specific credit factors that negatively impact their credit score."
"My top priority is to protect Montana consumers," Morrison said. "My office will continue to investigate and halt activities that are harmful or unfair to consumers."
Farmers Alliance has 15 days to respond to the notice and may request a hearing.
Individuals with questions or concerns about an insurance company's use of credit scoring should contact the State Auditor's Office at 1-800-332-6148.
The Montana Legislature is currently considering a bill to restrict insurance companies' use of credit scoring. Senate Bill 349 originally offered almost no consumer protections. However, the House of Representatives amended the bill to strengthen its protections. The amended version would prohibit insurers from using the type of credit accounts consumers have to take adverse actions against them.