NU Online News Service, Sept. 8, 10:48 a.m. EDT
NATIONAL HARBOR, MD.–Contrary to what insurers have been saying, the recession has had a nationwide negative impact on credit scores, regulators meeting here were told by a consumer advocate.
Connecticut-based consumer advocate Sonja Larkin made her comments at a session of the National Association of Insurance Commissioners, which is examining insurers' use of credit scoring.
Ms. Larkin said soaring mortgage default rates may be rendering ineffective the insurers' arguments that the current financial climate has not caused a significant change in people's credit scores.
She noted that during the current crisis, mortgage defaults have reached their highest levels since 1972.
Defaults, said Ms. Larkin, are not just hitting people who already had poor credit scores. Because the job market continues to struggle, and people with once-stable employment are now finding themselves unemployed, Ms. Larkin said people with good credit are also being affected by defaults.
This reality, she said, has changed the landscape from earlier this year, when insurers argued to the NAIC that the crisis has not caused an overall deterioration of scores.
Insurer groups have previously cited LexisNexis figures showing that recent insurance score trends do not reflect an overall deterioration of scores, and in fact have shown slight score improvements over the past five years.
Ms. Larkin said a recent change in the language of the model legislation for credit scoring drafted by the National Conference of Insurance Legislators is not sufficient to protect consumers.
The portion of the measure dealing with the impact of "extraordinary life circumstances" on consumers' credit scores is a problem because too much of the burden is on the consumers themselves to provide documentation and prove life-altering circumstances, she said.
Consumers, said Ms. Larkin, generally do not understand the complicated credit models or how to show the impact of a situation on their credit record.
Birny Birnbaum, executive director of the Center for Economic Justice compared insurers' use of credit information to the controversy surrounding pre-existing conditions in the health care arena.
He questioned how regulators could tacitly support credit scoring by not banning its use while simultaneously taking a stand against using pre-existing conditions to deny health coverage.
Pennsylvania Insurance Commissioner Joel Ario said auto and homeowners insurance are not at the same level of crisis as health insurance.
If those lines were in a similar position, he said credit scoring would likely receive more attention and action. He said he would ban the practice in his state if that was politically viable.
The NAIC's Property and Casualty and Market Regulation and Consumer Affairs Committees are scheduled to have a briefing on credit information tomorrow evening here. The same committees held a joint hearing on the issue at the last NAIC meeting in June, held in Minneapolis.
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