Michigan Insurers Can’t Use Credit Scores To Determine Rates

The Michigan Court of Appeals made a decision today, prohibiting Michigan home, auto, and casualty insurance providers from using policyholders’ FICO credit scores to determine their rates. The Court of Appeals had overruled a decision made by a lower-level Michigan court in 2005.

For the past 20 years, credit reporting bureaus have made Americans’ track records at paying off loans and other forms of debts readily accessible to the public. This practice has made it easy for banks, credit card companies, insurance companies, and other organization to approach their customers in new and more profitable ways. Companies have been able to tailor their approach to their customer’s level of creditworthiness, and thus cut down on risk and increase profits.

For insurance providers, this has meant looking up policyholders’ FICO scores–the number used by credit bureaus to determine every American’s debt history–in order to determine the rates those policyholders will receive. For many years, insurance providers in Michigan have been offering customers discounts on their premiums based on the customers’ credit scores. As a rule, policyholders with high FICO scores got the discounts, while policyholders with low FICO scores have had to pay the higher rates.

This practice was questioned in Michigan’s court system during the early 2000’s. Opponents of the practice claimed that determining insurance policyholders’ rates based on their credit scores was unjust to those without the financial resources to maintain high scores. Moreover, claimed the opponents, this practice unjustly affected racial and ethnic minorities, as well as younger and poorer Michigan residents. These groups of people should not the face additional obstacle of high premiums when trying to purchase insurance, claimed those who sought to regulate the Michigan insurance providers.

In 2005, the Michigan district court ruled against those who were in favor of regulation. The district court’s decision was appealed, however. Today, the Michigan Court of Appeals reversed the decision of the lower-level court.

Recent Additions:

• Federal Government Cuts Interest Rates
• Handle Your Credit Wisely
• Potential Credit Card Laws to Protect Consumers
• Can Your Credit Survive The Economy?
• MasterCard Optimistic, Perceives Positive Future

Related Articles

• Democratic VP Worries Credit Card Industry
The upcoming presidential election is giving the credit card industry cause for concern. Industry thinkers are worried about the impact of democratic presidential candidate Barack
• Credit Card Fraud Increases In California
Law enforcement officers say there's a rise in high-tech crime this year throughout southern California. Criminals are using illegal electronic devices to steal credit and
• There’s No Such Thing As A Free Credit Report
It is a basic law of economics: there's no such thing as a free lunch. Turns out, the same is true for most websites that
• Credit Could Affect Your Insurance
Making wise decisions to build your credit is important in a lot of ways. It helps you qualify for good loans with low interest rates
• FICO 08
With the changes in the market place and the shifting attitude of consumers towards plastic over cash, Fair Isaac has deemed it necessary to make