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H.734

Introduced by             Representative Keenan of St. Albans City

Referred to Committee on

Date:

Subject:     Insurance; property and casualty insurance; discrimination

Statement of purpose:  This bill proposes to prohibit unfair discrimination by insurers on the basis of credit history.

AN ACT RELATING TO THE USE OF CREDIT HISTORY BY INSURERS

It is hereby enacted by the General Assembly of the State of Vermont:

Sec. 1.  8 V.S.A. § 4724(23) is added to read:

(23)  Failing to comply with the provisions of this subdivision (23) regarding the use of credit information in insurance underwriting and pricing. 

(A)  The purpose of this subdivision (23) is to protect consumers from unfair discrimination by requiring insurers that take adverse action using credit information to base such action only upon specific credit events related to an individual consumer that affect the insurer’s risk under the policy and to notify consumers of the actual reason for adverse action.

(B)  Definitions.  As used in this subdivision (23): 

(i)  “Adverse action” means refusal to issue or renew coverage, to limit the amount of coverage or increase the price of coverage on a risk in this state.  Adverse action on eligibility or pricing shall include declination or placement with a particular insurer within a group of affiliated insurers and the use of surcharges or tier placement within an insurer.

(ii)  “Credit criterion” means information bearing on a particular aspect of an individual’s credit history. 

(iii)  “Credit information” shall include a consumer report within the meaning of 15 U.S.C. § 1681a of the federal Fair Credit Reporting Act, credit criterion and credit score.

(iv)  “Credit score” means a score that is derived by utilizing data from an individual’s credit report in an algorithm, computer program, model, or other process that reduces the data to a number or rating.

(v)  “Firm offer of insurance” shall have the same meaning as in 15 U.S.C. § 1681a.

(vi)  “Personal risk insurance” means insurance to be used primarily for personal, family or household purposes. 

(C)  An insurer shall not take adverse action on the eligibility or pricing of personal risk insurance based on a consumer’s credit information unless:

(i)  the action is based upon one or more specific credit criteria in a consumer credit report;

(ii)  the insurer can demonstrate that the credit criterion used by the insurer increases the risk of loss to the insurer under the policy; and

(iii)  the insurer provides to the consumer any disclosures required under subdivision (D) of this subdivision (23). 

(D)  The commissioner shall adopt rules on consumer disclosures when credit information is used to take adverse action against a consumer who is either an applicant for, or an insured under, a policy of personal risk insurance.  The commissioner may require disclosures under this

subdivision (23) to include, among other things, the fact that credit information was used, the relationship between the specific credit criterion used and the adverse action taken, and an explanation of how an individual credit score may be improved. 

(E)  An insurer shall not use credit information that is more than two years old to determine initial eligibility for personal risk insurance.  Prior to taking any adverse action on an existing personal risk insurance policy, an insurer that uses credit information in determining whether to take adverse action shall obtain and use current credit information. 

(F)  Any process that calculates a credit score shall assign a neutral value to any factor used in the process for which there is no data or information about the individual consumer. 

(G)  An insurer shall be prohibited from inquiring directly or indirectly about an individual’s credit history prior to taking an application for personal risk insurance, other than a transaction involving a firm offer of insurance.

(H)  No insurer may take adverse action based upon the fact that an applicant or insured does not possess a credit card.

(I)  An insurer shall file with the department, upon request of the commissioner, any algorithm, computer program, model, or other process and data used to calculate a credit score to verify compliance with this

subdivision (23).  Any filing required under this subdivision (I) shall be a trade secret for purposes of section 317 of Title 1.  Nothing in this subdivision (23) shall prevent the commissioner from using and making public any such filing in furtherance of any legal or regulatory action.  Section 18 of this title shall apply to the review of any filing made under this subdivision (23).

(J)  The provisions of this subdivision (23) do not apply to the use of a consumer report or credit score by an insurer in an insurance transaction that is not initiated by the consumer and consists of a firm offer of insurance.