Released: May 1, 2002

Credit Scoring
Credit scoring of Minnesota consumers restricted under new law

(St. Paul) - Statement of Minnesota Commerce Commissioner Jim Bernstein.

A bill passed by the Minnesota legislature and signed by Governor Ventura will prohibit insurance companies from rejecting, canceling, or not renewing automobile or homeowners insurance solely on the basis of "credit scores" - a number derived from a person's credit history. This law also requires insurance companies to produce evidence that shows their use of credit scoring is legitimate, lawful, and fair.

As Minnesota's insurance regulator, I am disturbed that the insurance industry is using credit scores to determine if someone is more likely to file a claim. Only a handful of Minnesota consumers with higher credit scores get better rates while many more with lower scores pay higher premiums, if they can get insurance at all. The Department receives about 40 calls a week from consumers complaining about insurance credit scoring.

Insurers say there is a direct correlation between the way people use credit and the way they drive a car or take care of their home. To date, not a single insurance company has been willing or able to provide data that would support this claim. Under this law, they will have to.

The burden now is on those insurance companies that choose to use credit scoring in Minnesota and I intend to set the bar high. These companies will need to demonstrate how their system works, prove that it is not discriminatory, and show that it is, in fact, predictive. I will insist that each company file with the Department its methodology, rationale, and factors used in a credit scoring system. Credit scoring methods that incorporate gender, race, nationality or religion in their model will be prohibited.

The original bill, when first introduced, would have completely banned the use of credit scoring by insurance companies. This law doesn't go that far, but it does give Minnesota the ability to restrict its use and it gives Minnesota consumers an advantage over insurance companies using this questionable practice. It's a good step in addressing a bad idea.