Collins' plan would ban car insurance from looking at credit scores

SPRINGFIELD – State Senator Jacqueline Y. Collins (D-Chicago 16th) has introduced legislation to ban auto insurance companies in Illinois from basing their prices on a customer’s credit score. The Senate Insurance Committee heard from advocates yesterday about the role this practice plays in exacerbating existing racial and socioeconomic inequalities and helping fuel the self-perpetuating cycle of poor credit.

“It’s absurd and unacceptable that in Illinois today, a person with poor credit but a perfect driving record pays, on average, substantially more for car insurance than a person with great credit and a drunken driving conviction,” Collins said. “That certainly doesn’t make our roads safer or create incentives for responsible driving, and it makes it even harder for people who are in debt to drive to work so they can get out of debt.”

Consumer Reports magazine and the Consumer Federation of America extensively researched the relationship between credit scores and auto insurance rates and found the following:

• Nationally, people with low credit scores are charged car insurance premiums that are substantially higher – in some cases more than twice as expensive – than people with high credit scores, even when other factors such as age, gender, zip code and driving record are identical

• In Illinois, a person with poor credit and no record of traffic violations pays on average 51 percent more per year for car insurance than a person with excellent credit who has been convicted of a DUI

• Twenty percent of Illinois residents have credit scores considered non-prime (less than 620), but in zip codes with predominantly African-American populations, that percentage rises to 54 percent, and in predominantly Latino zip codes, it’s 30 percent; thus, credit-based insurance pricing disproportionately affects drivers in minority communities

• Twenty percent of surveyed credit reports contained errors that negatively affected scores (this result was duplicated in a Federal Trade Commission study)

• More than half of overdue debt on credit reports is medical debt

“For many Illinoisans, auto insurance is not an optional purchase; it is what allows them to get to work so they can earn income and get out of debt,” Collins said. “A credit score is a predictor – and an imperfect one at that – of a person’s ability to repay a debt; it was never designed to predict driving behavior. The same communities of color hit hard by redlining, subprime mortgages, the recession and the housing crisis are still needlessly paying more for a basic product their residents need in order to rebound.”

California, Massachusetts and Hawaii already prohibit credit-based auto insurance pricing.

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Interested in this issue? Read more about Consumer Reports' car insurance survey.