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Consumer, economic justice, and community groups urge New York financial regulator to ban auto insurers from basing rates on credit information

Unfair practice disproportionately harms low income, Black, and Latino New Yorkers

ALBANY, NY — A coalition of 25 consumer, economic justice, and community groups today called on the New York Department of Financial Services to prohibit auto insurers from using consumer credit information to determine how much drivers pay for coverage. The coalition urged the Department in a letter to take action shortly after new research by the Consumer Federation of America showed how good drivers in New York with fair or poor credit can be charged hundreds or even thousands of dollars more annually for insurance. A complete list of the groups urging the Department to take action can be found on the letter.

Low income, Black, and Latino drivers are disproportionately harmed by the controversial industry practice.  Last year, the Department ordered insurers to submit data to justify the use of credit information for pricing insurance as part of an investigation into the issue and is expected to issue a report on the matter soon.

In a letter sent to New York Department of Financial Services Superintendent Adrienne A. Harris, the coalition noted, “Prohibiting credit information in auto insurance will make rates more affordable for consumers, help combat systemic racism, and greatly reduce unfair discrimination in the auto insurance market….Insurance should be fairly priced based on someone’s driving behavior, not on socioeconomic factors that have nothing to do with their driving record.”

According to CFA’s recently released analysis of insurance data, New Yorkers who have a clean driving record and excellent credit pay a weighted statewide average of $730 annually for basic liability coverage. But New Yorkers with a clean driving record and fair credit pay $1,148 for auto insurance, 57 percent or $418 more per year. Even worse, drivers with a clean driving record and poor credit pay on average $2,097 for insurance, a whopping $1,367 more than drivers with excellent credit – a 187 percent increase.

See the end of this news release for charts from the CFA report showing average premiums based on credit information for other major New York metro areas and the NYC boroughs.

In certain cities and boroughs, credit surcharges are even worse than the statewide average. For example, Buffalo drivers with excellent credit pay an average premium of $826 for auto insurance, but drivers with poor credit pay on average $2,259 for auto insurance. Queens drivers with excellent credit pay an average of $1,600 for auto insurance but drivers with poor credit pay an average of $5,512. And Brooklyn drivers with excellent credit pay on average $1,861 for auto insurance, but Brooklyn drivers with poor credit face premiums averaging $5,971 annually.

Research carried out by Consumer Reports in 2015 found that insurers give so much weight to credit histories when pricing insurance that it can have a greater impact on premiums than a drunk driving conviction. CR concluded that New Yorkers with clean driving records and poor credit paid an average of $589 more statewide than a driver convicted of driving while intoxicated who has excellent credit.

The coalition’s letter points out that, for many historic and systemic reasons, the use of credit histories in underwriting and rating auto insurance disproportionately harms people of color. Multiple studies have shown that credit scores are highly correlated with race and income.  They also reinforce past patterns of discrimination, such as residential mortgage redlining and discrimination in education and housing.

According to the Urban Institute, 16 percent of New Yorkers had a subprime credit score below 620 in August 2021, but people of color are more likely to have a subprime score. The Institute found that 22.6 percent of New Yorkers in communities where people of color are a majority have a subprime score, compared with 12.4 percent of New Yorkers in majority white communities.

“In 2017, the Department took a very important step…by banning the use of education level or occupational status in setting insurance rates,” the coalition’s letter points out. “Credit history has a similar harmful impact on consumers, except it’s far more severe. We urge you to move forward quickly on your efforts to investigate the harmful impacts of the use of credit scores [for pricing auto insurance], and propose and implement regulations to ban its use.”

Michael McCauley, michael.mccauley@consumer.org or Emily Akpan, emily.akpan@consumer.org