Both Sides Respond to FTC Minority Credit Score Report

The Federal Trade Commission’s report last week on credit scores and minorities is drawing a mixed response from advocates as a Congressional subcommittee postpones a hearing on the topic.

The FTC’s “Credit-Based Insurance Scores: Impacts on Consumers of Automobile Insurance,” found that African-Americans and Hispanics generally have lower credit scores and pay more for auto insurance.

The FTC also said it could not develop an alternative scoring model that would decrease the racial and ethnic disparity. “The results of these efforts indicate that there is no readily available alternative scoring model that would achieve those results,” the report stated.

Jerry Johns, president of Southwestern Insurance Information Service, an industry organization based in Austin, Texas, told the Dallas Morning News, “The multiyear FTC study validates countless other studies which concluded that the way people handle their financial responsibilities is a strong predictor of insurance losses.”

Consumer groups such as the Center for Economic Justice, Consumer Federation of America, National Consumer Law Center, and the National Fair Housing Allliance, however, condemned the study. In a joint statement, the groups expressed disbelief that the FTC could, in its own report, show that “credit scoring discriminates against low income and minority consumers” and use “insurance scoring [as] a proxy for race.”

FTC Commissioner Pamela Jones Harbor also disagreed with the study, releasing a dissenting opinion that held that “the data collection and analyses fell short of the commission’s gold standard for rigor and completeness.”

The Subcommittee on Oversight and Investigations, chaired by U.S. Representative Melvin L. Watt (D-NC), last week postponed a hearing on the use of credit scoring and insurance due to scheduling difficulties. A new date has not been set. The proposed hearing will specifically review the FTC’s study.