Louisiana Blocks Credit Score

TEXT Louisiana House lawmakers this week narrowly gave their approval to legislation that would block companies from using consumer credit information for state citizens from 2005.

By a vote of 7 to 6, members of the House insurance Committee approved House Bill 318, which was introduced by Rep. Cedric Richmond, D-New Orleans. According to the language of the bill, insurers would be barred from using any 2005 credit information “to underwrite or rate risks for any person who resided in an area that was gubernatorially declared to be in a state of disaster or emergency during” last year.

The American Insurance Association has voiced concern over the bill, which it says could harm consumers who improved their credit during 2005, and that the bill's goal of easing the strain on victims of Hurricane Katrina has already been met by a directive from the state insurance commissioner.

“While H.B. 318 addresses an important consumer issue, it is one that is already being adequately handled,” said John Marlow, assistant vice president of the Southwest Region for the AIA. “In fact, this bill may negatively impact both consumers and insurers because it is overbroad and excludes all 2005 credit information and it excludes valuable information available pre-hurricane — more than half of 2005. Consumers with positive credit experience during this time period could actually be harmed.”

Earlier this year, state insurance commissioner Jim Donelon, a Republican, issued Directive 196, which specifically categorized hurricanes Katrina and Rita as catastrophic events. The directive ordered insurers to “ignore all unfavorable entries entered into an individual's credit record beginning with entries posted on August 26, 2005, and all such unfavorable entries posted thereafter, that are related to Hurricane Katrina and/or Hurricane Rita.”

With the committee's approval, the bill will now move to the floor of the State House.

Credit scoring has become a major issue for insurers and lawmakers throughout the country over the past decade. Insurance groups have been largely successful in staving off outright bans on using credit information, although many states, including Louisiana, have some form of restriction on such use.

“Louisiana already regulates insurer use of credit information and has strong consumer protections in place through both regulation and law, especially for extraordinary life circumstances such catastrophic hurricanes,” said Mr. Marlow.