THE IMPACT OF CREDIT-BASED INSURANCE 

SCORING ON THE AVAILABILITY 

AND AFFORDABILITY OF INSURANCE 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

OVERSIGHT AND INVESTIGATIONS 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED TENTH CONGRESS 

SECOND SESSION 

MAY 21, 2008 

Printed for the use of the Committee on Financial Services 

Serial No. 110–113 

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THE AVAILABILITY AND AFFORDABILITY OF INSURANCE 

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THE IMPACT OF CREDIT-BASED INSURANCE 

SCORING ON THE AVAILABILITY 

AND AFFORDABILITY OF INSURANCE 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

OVERSIGHT AND INVESTIGATIONS 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED TENTH CONGRESS 

SECOND SESSION 

MAY 21, 2008 

Printed for the use of the Committee on Financial Services 

Serial No. 110–113 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

BARNEY FRANK, Massachusetts, Chairman 

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

GWEN MOORE, Wisconsin, 

LINCOLN DAVIS, Tennessee 

PAUL W. HODES, New Hampshire 

KEITH ELLISON, Minnesota 

RON KLEIN, Florida 

TIM MAHONEY, Florida 

CHARLES A. WILSON, Ohio 

ED PERLMUTTER, Colorado 

CHRISTOPHER S. MURPHY, Connecticut 

JOE DONNELLY, Indiana 

ROBERT WEXLER, Florida 

JIM MARSHALL, Georgia 

DAN BOREN, Oklahoma 

BILL FOSTER, Illinois 

ANDRE ́ CARSON, Indiana 

SPENCER BACHUS, Alabama 

DEBORAH PRYCE, Ohio 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

STEVEN C. LATOURETTE, Ohio 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

CHRISTOPHER SHAYS, Connecticut 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

TOM FEENEY, Florida 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

GINNY BROWN-WAITE, Florida 

J. GRESHAM BARRETT, South Carolina 

JIM GERLACH, Pennsylvania 

STEVAN PEARCE, New Mexico 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

GEOFF DAVIS, Kentucky 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

ADAM PUTNAM, Florida 

MICHELE BACHMANN, Minnesota 

PETER J. ROSKAM, Illinois 

KENNY MARCHANT, Texas 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

DEAN HELLER, Nevada 

JEANNE M. ROSLANOWICK, Staff Director and Chief Counsel 

(III) 

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

MELVIN L. WATT, North Carolina, Chairman 

LUIS V. GUTIERREZ, Illinois 

MAXINE WATERS, California 

STEPHEN F. LYNCH, Massachusetts 

NYDIA M. VELA ́ ZQUEZ, New York 

MICHAEL E. CAPUANO, Massachusetts 

CAROLYN MCCARTHY, New York 

RON KLEIN, Florida 

TIM MAHONEY, Florida 

ROBERT WEXLER, Florida 

GARY G. MILLER, California 

PATRICK T. MCHENRY, North Carolina 

EDWARD R. ROYCE, California 

RON PAUL, Texas 

STEVEN C. LATOURETTE, Ohio 

J. GRESHAM BARRETT, South Carolina 

MICHELE BACHMANN, Minnesota 

PETER J. ROSKAM, Illinois 

KEVIN McCARTHY, California 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

May 21, 2008 ..................................................................................................... 1 

Appendix: 

May 21, 2008 ..................................................................................................... 57 

WITNESSES 

WEDNESDAY, MAY 21, 2008 

Hunter, J. Robert, Director of Insurance, Consumer Federation of America ..... 32 

Keiser, Hon. George J., Representative, State of North Dakota, on behalf 

of the National Conference of Insurance Legislators (NCOIL) ........................ 17 

McCarty, Hon. Kevin, Insurance Commissioner, State of Florida, on behalf 

of the National Association of Insurance Commissioners (NAIC) .................... 15 

Neeson, Charles, Senior Executive, Personal Lines Products, Westfield Group, 

on behalf of Property Casualty Insurers Association of America ..................... 38 

Parnes, Lydia B., Director, Bureau of Consumer Protection, Federal Trade 

Commission ........................................................................................................... 14 

Poe, Eric, Chief Operating Officer, Cure Automobile Insurance ......................... 36 

Powell, Lawrence S., Ph.D., Professor, University of Arkansas at Little Rock .. 42 

Pratt, Stuart K., President, Consumer Data Industry Association ..................... 40 

Rice, Lisa, Vice President, National Fair Housing Alliance ................................ 34 

APPENDIX 

Prepared statements: 

Carson, Hon. Andre .......................................................................................... 58 

Hunter, J. Robert .............................................................................................. 59 

Keiser, Hon. George J. ..................................................................................... 101 

McCarty, Hon. Kevin ........................................................................................ 112 

Neeson, Charles ................................................................................................ 168 

Parnes, Lydia B. ............................................................................................... 173 

Poe, Eric ............................................................................................................ 181 

Powell, Lawrence S. ......................................................................................... 193 

Pratt, Stuart K. ................................................................................................ 214 

Rice, Lisa ........................................................................................................... 233 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Watt, Hon. Melvin: 

Information from the Web sites of AllState, State Farm, and Travelers 

Insurance Companies on what factors they consider in determining 

rates ............................................................................................................... 245 

USA Today article entitled, ‘‘Credit scores’ link to insurance rates tested’’ 251 

Responses to questions submitted to J. Robert Hunter ................................ 252 

Responses to questions submitted to Lydia Parnes ....................................... 254 

Responses to questions submitted to Eric Poe ............................................... 257 

Responses to questions submitted to Lawrence S. Powell ............................ 272 

Miller, Hon. Gary: 

Letter from the American Insurance Association, the Financial Services 

Roundtable, the Independent Insurance Agents and Brokers of America, the National Association of Mutual Insurance Companies, and 

the U.S. Chamber of Commerce .................................................................. 279 

Statement of the National Association of Mutual Insurance Companies .... 280 

Statement of Michael J. Miller and EPIC Consulting ................................... 289 

Page

VI 

Miller, Hon. Gary—Continued 

Statement of the Property Casualty Insurers Association of America ........ 294 

‘‘The Use of Occupation and Education Factors in Automobile Insurance,’’ 

State of New Jersey, Department of Banking and Insurance, dated 

April 2008 ...................................................................................................... 296 

(1) 

THE IMPACT OF CREDIT-BASED INSURANCE 

SCORING ON THE AVAILABILITY 

AND AFFORDABILITY OF INSURANCE 

Wednesday, May 21, 2008 

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON OVERSIGHT

AND INVESTIGATIONS, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The subcommittee met, pursuant to notice, at 10:03 a.m., in room 

2128 Rayburn House Office Building, Hon. Melvin L. Watt [chairman of the subcommittee] presiding. 

Members present: Representatives Watt, Gutierrez, Waters, 

Green, Klein, Boren; Miller, McHenry, Royce, Barrett, Roskam, and 

McCarthy. 

Ex officio present: Representative Bachus. 

Also present: Representative Lynch. 

Chairman WATT. This hearing of the Subcommittee on Oversight 

and Investigations of the Financial Services Committee will come 

to order. 

I will recognize myself for 5 minutes or less for an opening statement. 

This is the second in a series of hearings held by the Oversight 

Subcommittee to gain more information about the use of consumer 

credit information in the underwriting and rating of personal lines 

of insurance, including automobile and homeowners’ insurance. 

These hearings are warranted because this practice, known as 

‘‘insurance scoring,’’ and its derivative products referred to as 

‘‘credit-based insurance scores,’’ or simply ‘‘insurance scores,’’ cries 

out for careful evaluation to determine whether it is consistent 

with good public policy. 

We learned at the Oversight and Investigation Subcommittee’s 

first hearing in October of 2007 that almost all major insurance 

companies use credit-based insurance scores in some way. Consequently, nearly all Americans who drive cars or own homes must 

also have good credit if they are to avoid paying high insurance 

premiums, regardless of their individual claims history or driving 

record. 

We also learned through a report by the FTC that while creditbased insurance scores are predictive of claims risk, or claims, no 

one can explain why this is the case. We also learned from the last 

hearing that in three out of four lines of automobile insurance, 

credit-based insurance scores serve in some measure as a proxy for 

2 

race. However, given the data concerns with the automobile study 

that witnesses discussed extensively at the last hearing, the full extent of the proxy effect still may not be known. 

Despite perceived shortcomings of the data, the FTC report concluded that there was some ‘‘proxy effect’’ from the use of creditbased insurance scores, and as noted by a dissenting Commissioner, ‘‘Given the incompleteness of the data, it is unclear whether 

the actual proxy effect might be greater.’’ 

Even a minor proxy effect for race gives rise to the most serious 

public policy concerns. I don’t think anyone should favor a system 

in which either directly or indirectly, racial classifications are allowed to hinder a person in their daily lives, whether in being considered for employment, getting an education, buying a home, getting credit, or purchasing financial products like automobile and 

homeowners’ insurance. 

Because of these major public policy concerns, two bills have 

been introduced. One, H.R. 5633, introduced by Representative 

Luis Gutierrez, the chairman of the Domestic and International 

Monetary Policy Subcommittee of the Financial Services Committee, would reign in the use of credit-based insurance scoring by 

prohibiting the use of credit-based insurance scores where the Federal Trade Commission finds evidence of racial discrimination, or 

that credit-based insurance scores serve as a proxy for race. 

The second bill, H.R. 6062, introduced by Representative Maxine 

Waters, chairwoman of the Housing and Community Opportunity 

Subcommittee of the Financial Services Committee, would prohibit 

the use of credit-based insurance scores altogether in underwriting 

or pricing personal lines of insurance. 

I am going to digress just long enough to say that I am a cosponsor of both of these bills. I actually think I start with the assumption that there really shouldn’t be a connection between somebody’s 

credit score and their insurance premium any more than there 

should be a connection between somebody’s driving record and 

whether they get credit. 

But I guess I am willing to be convinced that perhaps there is 

some utility in the use of these scores, but I am not sure that I can 

be convinced that if they are a proxy for race, we can justify their 

use as a matter of public policy, even if there is a correlation between credit scores and insurance premiums, or underwriting of insurance. 

So, I am on both bills. I am trying to keep somewhat of an open 

mind on this issue, but we don’t legislate in this committee anyway. We just have hearings and build a record, so my presence on 

either one bill or the other probably has no significance to my role 

as chairman of the subcommittee. That is just to put everything on 

the record. 

We hope to shed more light on the pros and cons of each of these 

two proposals, H.R. 5633 and H.R. 6062, as well as consider 

changes or other options that might be appropriate at today’s hearing. 

We look forward to hearing from the witnesses about the potential impact of H.R. 5633 and H.R. 6062 on consumers and the insurance industry. And with that, I will recognize my colleague, the 

3 

ranking member of the full Financial Services Committee, Mr. 

Bachus, for 5 minutes. 

Mr. BACHUS. Thank you, Chairman Watt, for holding this second 

hearing before your subcommittee on the impact of credit-based insurance scoring on insurance availability and affordability. Let me 

say at the onset that I acknowledge your concerns and those of Mr. 

Gutierrez. I know that Congressman Green has what I think are 

good-faith concerns, as has Chairwoman Waters. So certainly I 

enter this hearing with an open mind. 

Credit scores, as we all know, are widely used for a number of 

purposes other than lending, including employment interviews, 

apartment rental applications, government licenses, mobile phone 

services, as well as insurance, which brings us here today. Credit 

scoring actually can help individuals who manage their financial 

affairs responsibly, I believe, to get a number of benefits that they 

might not otherwise receive, based on traditional underscoring criteria such as age, gender, zip code, or income. 

So actually I believe in certain cases—and studies have validated 

this—people have actually benefitted from their credit scores 

through cheaper insurance or availability of insurance. In fact, I 

think the FTC confirmed this in a recent study that found the use 

of credit scores greatly increases fairness and affordability for consumers of insurance products. 

They found that more responsible and thus lower-risk drivers get 

cheaper coverage, but they also found that higher-risk drivers enjoy 

greater access to insurance because insurers can more accurately 

price their risk. 

They further found that ‘‘Credit-based insurance scores appear to 

have little effect as a proxy for race, although every predictive factor the FTC analyzed had a slight disparate impact on certain ethnic groups.’’ And I think that, obviously, is the subject matter of 

Mr. Gutierrez’ legislation. 

For example, they found that prior claims history had a disparate impact on various ethnic groups, with nearly the same percentage of proxy effect to predictive value as credit-based insurance 

scores. So the use of credit scores for various purposes—not only 

has the FTC studied it, but it has been extensively scrutinized by 

State regulators. I will just mention two. 

The Texas Insurance Department recently analyzed 2 million insurance policies and found a direct and non-discriminatory correlation between insurance scores and expected losses. It found that 

the average automobile insurance losses for people with the worst 

credit scores are double those for people with the best credit scores, 

while losses on homeowners’ policies for people with the worst credit scores are triple those of people with the best scores. The Texas 

Department further found that these scores were not unfairly discriminatory or based on race or income. 

A second study, this one by the Arkansas Insurance Department, 

yielded similar results, including a finding that 3 times as many 

consumers received lower insurance rates because of credit score 

use than received higher rates. In short, the evidence from these 

studies appears pretty clear that credit scores are one of the most 

accurate non-discriminatory predictors of insurance risk available. 

4 

However—and I think maybe this would be a good starting point 

for us to make some agreement—most States, after lengthy deliberation, have chosen to adopt a model law developed by the National Conference of Insurance Legislators, and that model recognizes the benefits to consumers of using credit-based insurance 

scores, but prohibits using credit information as the sole basis for 

increasing rates or denying canceling or failing to renew coverage. 

The model act also includes a number of safeguards, including 

prohibiting insurers from taking an adverse action against an insured with no credit history. In other words, recent immigrants 

with no credit history would have to be treated as having a neutral 

credit score. 

In closing, Mr. Chairman, as used in the insurance underwriting 

process, credit scores appear to be highly predictive of, and many 

times lower the cost of insurance for consumers. I think they encourage responsible behavior, and they are closely regulated by the 

States. And I think any legislative attempt to limit or prohibit 

their use in evaluating risk should be done so very carefully. 

I thank you. 

Chairman WATT. I thank the gentleman for his opening statement. I now recognize Representative Gutierrez for 5 minutes. 

Mr. GUTIERREZ. Thank you very much. I ask that my complete 

statement be entered into the record. 

Chairman WATT. Without objection, it is so ordered. 

Mr. GUTIERREZ. Thank you very much. I thank Chairman Watt 

for calling this hearing, and I appreciate the comments of Ranking 

Member Bachus, and I thank everybody for joining us here. 

I just think that if you have a good driving record, if you stop 

at stop signs, you don’t go through red lights, you don’t speed, you 

don’t crash into people’s cars, and you don’t let your daughter use 

the car so she can let her boyfriend crash it as they go out dating, 

if you act in all these responsible manners, you should get a good 

insurance rate, regardless of what your credit score might be. 

Now I remember when I wasn’t a Member of Congress, and I remember going to get my first—I couldn’t get a credit card, so I had 

to get a store card—I remember, Montgomery Ward is now defunct, 

I think. But that was the only place. And you got $200 worth of 

credit there, and then you moved up to J.C. Penney, and you got 

another $200 there, and you paid that faithfully, because that was 

the only way to get credit. I was a college graduate, I had a good 

job, I just couldn’t get credit—couldn’t get a mortgage, couldn’t buy 

a house. 

But I got those two store cards. Finally, they gave me a credit 

card, my first VISA credit card. And I remember that they suspended it after 2 years just because arbitrarily they decided one 

day that I had paid the bills on time, but they just suspended it. 

I don’t know why. I was pretty angry. I remember calling the 1– 

800 number like 100 times, thinking about how much damage I 

could cause, inflict some kind of financial pain on them, because 

they did it for no reason. 

I’m sure they wouldn’t have done that if they thought I was 

going to be, you know, a subcommittee chairman on the Financial 

Services Committee one day. Because I still remember the credit 

card company that—they didn’t cancel my card, they said, ‘‘Thank 

5 

you for the $35 annual fee. Keep paying, but you can’t charge anything more on that credit card.’’ 

Now look, we should all understand our personal experiences and 

the experiences of consumers in America. I just want to reiterate: 

If you drive safely, if you stop at stop signs, if you don’t speed, you 

don’t have accidents, you maintain your car, and you’re a safe driver, that should be primarily how it is you get scored in terms of 

how much insurance you pay. And I think that should be the ultimate goal. 

If there are other criterion, maybe we should try to balance and 

blend them. 

Thank you very much, Mr. Chairman. 

Chairman WATT. Thank you for your statement. 

I recognize the ranking member of the subcommittee, my good 

friend, Mr. Miller, for 5 minutes. 

Mr. MILLER. Thank you, Chairman Watt, for holding this hearing 

today. This is the second hearing we have had on the impact of 

credit-based insurance scores on the availability and affordability 

of insurance. 

As numerous States, Federal agencies, and private experts have 

concluded in studies on this topic, credit-based insurance scores do 

indeed make insurance more available and affordable for consumers. 

Over 30 years ago, Congress passed the Fair Credit Reporting 

Act, permitting insurers to use credit information to underwrite insurance. Since the law’s enactment, several studies have been conducted on credit-based insurance scores, showing a strong correlation between credit history and the likelihood of filing insurance 

claims. 

The credit information enables most consumers to qualify for 

lower insurance rates, since most consumers have good credit. Insurance companies have even reported that credit scoring may in 

some cases counter-balance the imperfect driving record of individuals. 

After questioning the legitimacy of using credit scores to underwrite risk, and expressing concerns that the scoring method was 

discriminating against minorities, Congress directed the Federal 

Reserve Board and the Federal Trade Commission, FTC, to study 

the effects of this practice on credit and insurance markets, and report their findings to Congress in the 2007 FTC study on the use 

of credit reports and automobile insurance, and the Commissioners 

confirmed that credit scores are accurate and objective predictors 

of risk. 

That conclusion drawn by the FTC showed that for financially responsible consumers, credit scores decreased insurance rates. The 

FTC also confirmed that credit scores make insurance more available for many riskier consumers, for which insurance would not 

otherwise be able to be determined an appropriate premium. 

The FTC disproved concerns that insurance scores somehow 

serves as a proxy for race, finding that ‘‘credit-based insurance 

scores appear to have little effect as a proxy for membership in racial and ethnic groups in decisions related to insurance.’’ Further, 

the Commission found that insurers do not use risk models that 

contain information about race, ethnicity, or household income. 

6 

The Federal Reserve Board reported similar findings in their 

study last year on credit. The Board concluded that credit scoring 

likely increases the consistency and objectivity of risk evaluation, 

thus helping diminish the possibility that credit decisions would be 

influenced by personal characteristics or other factors prohibited by 

law, such as race or ethnicity. 

The favorable study by the FTC and the Federal Reserve Board 

regarding the beneficial use of credit scores have been echoed by 

similar findings in the States. For example, the Texas Department 

of Insurance conducted extensive research on credit scores and reported that there is no way to determine race, ethnicity, gender, 

age, or economic status by checking a person’s credit information. 

The Texas study also found that drivers with good credit are involved in 40 percent fewer accidents than those with poor credit. 

In addition, homeowners’ insurance claims for people with bad 

credit are triple that of people with a better credit history. In fact, 

the vast majority of States have thoroughly examined the use of 

credit risk insurance scores and approved their use for pricing risk. 

After years of deliberation and study, the National Conference 

for Insurance Legislatures, NCOIL, established a model allowing 

the use of credit information in personal insurance as long as it is 

not the sole factor used in underwriting. The NCOIL model has 

been adopted by 26 of the States and prohibits insurers from denying, canceling, or non-renewing coverage due only to credit history. 

According to the NCOIL in most of these States, insurers are unable to deny consumer’s insurance based on a thin credit history 

or no credit at all. The FTC’s conclusion, studies on auto insurance 

involved a research team of career Ph.D.’s, economists, and consultations with communities, civil rights, consumers, and housing 

groups, government agencies, and private companies, examination 

of records, and assurances of reliability and independently tested 

data. Facts and facts and conclusions are comprehensive and incontrovertible. 

Yet after the study was concluded, several of my colleagues were 

unsatisfied with the result and challenged the Commission’s data 

gathering, insisting that the FTC subpoena further information 

from insurers. The purpose of this action is unclear to me, considering the fact the Commission testified in October that ‘‘The insurance industry was cooperative and forthright with the FTC 

throughout the process of gathering data and analysis.’’ 

They further testified of the extensive cost and drain on resources to the Commission. In more recent discussions with the 

FTC, I have learned that extensive automobile studies have already cost millions of dollars—that is millions of taxpayer dollars— 

and that the compulsory request for data from insurers for the 

homeownership study would cost taxpayers as much as double or 

triple the amount we have already paid. 

I am glad we are going to have the hearing again. I hope that 

maybe some new information has been gathered. I don’t know if 

that is going to be the case; but I just have a concern when we are 

using subpoena powers on an industry that the testimony to-date 

has said has been cooperative. And I also have a concern about the 

privacy of the information we might gather in the future. The FreeVerDate Aug 31 2005 17:22 Aug 28, 2008 Jkt 043699 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 K:\DOCS\43699.TXT TERRIE
7 

dom of Information Act is very broad, and I am concerned that 

might apply here. 

I yield back. Thank you. 

Chairman WATT. I thank the gentleman for his comments. And 

while that is not the issue directly today, we had an extensive discussion about that at the last hearing. That is the FTC’s decision. 

We have not directed them to do anything; we just asked them to 

get us good information. And if they decide that they need subpoenas, fine; if they decide that they do not need subpoenas, if they 

can get us a good report that tells us what the impact of creditbased scoring is, then that is for the FTC to decide. But we are not 

trying to micromanage that; I want to assure the ranking member 

of that. 

Are there any other members who wish to make opening statements? I am just trying to get a gauge, so I know how much time 

to divide—one, two, three on this side; and one on the other side. 

Okay. 

I recognize Mr. Green for up to 5 minutes, if he chooses, and 

then we will go to the other side. 

Mr. GREEN. Thank you, Mr. Chairman. And if I may, let me start 

by thanking you for allowing me to become a part of the committee. 

I thank you and the ranking member for accepting me as a member. This is my first hearing. And to you and the ranking member, 

I greatly appreciate your having this hearing, because it is something that has been of concern to me for some time. 

I especially thank the ranking member for his comments. He and 

I have had many conversations, and I have found him to be a person who is principled and who moves forward based upon what he 

sincerely believes to be the case. Notwithstanding the fact that he 

and I may have differences, we do have one thing in common, and 

that is we enjoy our conversations with each other about our differences. 

My concern with this is as was indicated previously: The 

connectivity between one’s credit score and one’s driving habits. I 

am hoping to hear information that can help me to better understand that relationship between one’s credit score and one’s driving 

behavior. 

I especially concern myself with this because we have young drivers who have no credit scores. It is not unusual for parents to add 

their children to their insurance, and these children, generally 

speaking, have little or no credit. How is it that they will inherit 

the credit of the parent and become a risk by virtue of having been 

born into a certain family? Is that the way it will work? Do they 

have a different standard for young drivers who have no credit 

score, who have not had a track record of driving at all, but perhaps they have been to a driving school and they have had all of 

the safety courses, such that one might conclude they understand 

the rules of the road? They don’t have a track record of poor behavior. I don’t see the connectivity between such a person and a credit 

score. 

It seems to me that if we are not careful, we are going to make 

it almost impossible to be poor in the richest country in the world. 

The richest country in the world; 1 out of every 110 persons is a 

millionaire. But it costs to be poor in America. You pay more for 

8 

your insurance; you ride on roads that will do more to your vehicle 

because of where you live if you are poor, generally speaking. You 

will probably have to get more wheel alignments. You probably go 

a store that has prices that are higher than in some other neighborhoods. 

And I think that at some point, we have to examine the notion 

of whether we ought to do things just because we can. Maybe you 

do have the right to do it, but the question is: Is it the right thing 

to do? 

I am looking for the cause of connection between a credit score 

and one’s driving behavior. 

Mr. Chairman, I thank you for the time, and I yield back. 

Chairman WATT. I thank the gentleman for his statement. The 

gentleman from California is recognized for 3 minutes. 

Mr. ROYCE. Four minutes, Mr. Chairman? 

Chairman WATT. Four minutes. Okay. 

Mr. ROYCE. Thank you, Mr. Chairman. I appreciate you holding 

this hearing. 

I would also just like to express my opposition to the concept 

here of banning the use of credit-based insurance scores, because 

from the studies I have seen, this is a very effective predictor of 

the actual risk. It is a predictor of the number of claims that the 

consumers file; it matches the total cost of those claims. Credit 

scoring is not based on race. And I think the FTC’s report, which 

came out in July, explained this benefit as have other studies. We 

have seen a number of studies on this subject. 

In the competitive marketplace which exists throughout most of 

the auto insurance sector, companies have an incentive to provide 

the lowest actuarially sound rates for the customers. In most instances, a potential customer can get several quotes on auto coverage in a matter of minutes over the Internet or by picking up the 

phone. 

Companies have even began to offer their prices along with the 

prices of their competitors in the names of attracting additional 

business. If there are inefficiencies, if there are gaps in coverage, 

I think a logical place to look would be the current State-based insurance regulatory system. With the exception of Illinois, every 

State subjects property and casualty insurance products to varying 

degrees of government price controls. And of course, that discourages companies from operating effectively and efficiently in those 

States. 

Additionally, the bureaucratic delays weigh heavily on the rates 

paid by consumers. The American Consumer Institute recently 

found that the cost of excessive regulation at the State level is 

$13.7 billion annually, paid for by insurance buyers through higher 

premiums. If Congress really wants to improve the ability of consumers with weaker credit histories to obtain more economical 

quotes on insurance coverage, we should be looking at ways to 

bring more competition to those markets. 

In the Wall Street Journal, on May 6th, there was an editorial 

on the Massachusetts Miracle, and that highlighted the recent 

move by Massachusetts to remove its government-set rates on auto 

coverage, and as the editorial noted, Progressive Insurance, the 

third largest insurer in the country, entered the market May 5th 

9 

with rates 18 percent below the old price-controlled rates. Overall, 

premiums in the State are going to fall 8 percent this year as insurers adjust to a world in which they need to compete to attract 

customers instead of bargaining with their regulator for price 

hikes. 

If more States saw the economic implications of price controls, or 

if Congress would consider our legislation to create an optional 

Federal charter, a greater number of consumers, including those 

this legislation was intended to help, would be on the receiving end 

of more products, and certainly with much lower premiums. 

So in closing, I would caution my colleagues against enacting legislation which leads to banning the use of credit scores by insurance providers as one of the many factors included when setting 

premiums. I believe the majority of consumers would see higher 

costs for insurance products if that happened, because their provider would not be able to set actuarially sound premiums. 

And again, Mr. Chairman, I offer this other alternative, and I 

would like to thank you for holding this hearing. I look forward to 

the testimony, and I appreciate the witnesses coming out to speak 

to us today. 

Thank you, Mr. Chairman 

Chairman WATT. I thank the gentleman for his presence and for 

his opening statement. I recognize my colleague from North Carolina, Mr. McHenry, for 3 minutes. 

Mr. MCHENRY. I appreciate the chairman’s recognizing me. And 

I do appreciate him holding this hearing as well. 

I think we should have a discussion about how to improve and 

how to accurately assess credit risk in all financial service products. But it is interesting here that the discussion is about whether 

or not a credit score should be used, and it is but one of the tools 

in the tool chest to assess risk. 

From what I have read in some studies, it is one of the most effective ways of assessing risk. Insurance is not simply an individual’s right, but it should be the ability of the company to accurately 

assess risk, so that they can more accurately seek payment for 

that. And I think as such, credit scores are a worthy example of 

the way an insurance company can assess risk. 

I don’t think it should be the be-all end-all, and from what I understand from the industry, it is not. 

But I would just go back to my experience in college with credit 

cards. My experience is pretty simple. You know, you go and rack 

up the credit card debt, which I did, buying cheeseburgers, pizza, 

and many other things in college, but I had to pay the consequences for that. 

And my credit score reflected that, and as such, I was a greater 

credit risk because of how much fun I had in college, and how I 

paid for it. And I think that is a fair assessment of how this works. 

I think we should go to an additional step—and I would be happy 

to work with the chairman on this—I do think the issue is not 

about the insurance industry using credit scores; I think it should 

be about how these credit scores are derived. 

There are a number of different items that are not included in 

a credit score that could better assess risk for individuals. For instance, most of us have to pay a power bill every month. I think 

10 

that would be a positive credit indicator. And I think if the insurance companies could see that they regularly pay their power bill 

every month, and have never missed a payment, maybe that would 

be a stronger indicator rather than their overall credit score on 

whether or not they will pay for their insurance, and be a greater 

risk. 

I think that’s a fair assessment. I think we should look at credit 

scoring rather than really I think a symptom of the underlying disease, which is how these credit scores are derived. I think that’s 

a positive thing; I think we could have some bipartisan support, 

and I look forward to working with the chairman on those items. 

Thank you so much for having the hearing today. 

Chairman WATT. I thank the gentleman for his opening statement, especially his confessions of his college years. I am glad he 

cut it off where he did. 

[Laughter] 

Chairman WATT. I recognize the gentleman from Illinois, Mr. 

Roskam, for 3 minutes. 

Mr. ROSKAM. Thank you, Mr. Chairman. And Mr. Chairman, 

thank you for holding this hearing today. I attended the last hearing, and I understand where the Majority is coming from in holding 

the first hearing. And that is, it’s a pretty interesting narrative, 

that if you can thread the pearls to suggest that there is a racial 

component to a predominant American industry, manipulating a 

marketplace on the backs of minority groups, that is powerful. That 

would be outrageous, and all of us would be outraged, and we 

would be like-minded and say, ‘‘That ought not to happen.’’ 

But as I listened to the testimony last time, and particularly the 

study from the Federal Trade Commission, what I heard was essentially that it wasn’t happening that way. There were some consumer groups who were testifying, and the more I listened—it’s 

kind of like talking on talk radio to the weird caller that calls in: 

The more you listen, the more disjointed it starts to sound. So I 

kind of discounted that in terms of testimony. 

And then, as I have been thinking about this, I have come to the 

conclusion that there are a lot of similarities between credit scoring 

and student grades and good student discounts. I mean, is there a 

relationship between someone’s driving record and their performance on a history test? Is there a relationship between someone’s 

driving record and their performance on their calculus final? Is 

there a relationship between someone’s driving record and their 

performance on their English composition? Well, we can’t really articulate what it is, but it just so happens to be that it always sort 

of seems to work out, and that it is a predictor. 

So as I was listening to the hearing last time, and I’m just doing 

research as to this other hearing that has been prompted, in Illinois, as it turns out, there is a carrier in Illinois that is using this, 

and they are actually increasing their book of business into South 

Chicago, which is a predominantly minority community. 

And so I think what we do today—if this sort of goes the direction that I think it might go—what we do is we risk taking away 

tools from carriers to offer more coverage to more people, regardless of race and ethnicity and the unintended consequence, I think, 

becomes a self-fulling prophecy, and it becomes more difficult for 

11 

folks to get the type of coverage they need. They are pushed into 

more residual markets. They are forced to go with the substandard 

insurance carriers with the great names. What I have learned is 

the more glorious the name of the insurance company, generally 

the worse the coverage is, and that, I think, is where we ought not 

to go. 

So I come with an open mind as well. But I also come, having 

listened to the testimony of the last hearing and being completely 

underwhelmed, and hoping that this bodes better in terms of the 

things that we are able to conclude. 

I yield back. 

Chairman WATT. I thank the gentleman for his opening statement, and I hope he is not underwhelmed. I thank him for being 

at the earlier hearing, as well as today’s hearing, and I think the 

audience and the witnesses recognize that there is a range of opinions on this issue, and a willingness and openness to understand 

how this system works, so that we can make good public policy. 

That is, after all, the reason we have these hearings, to try to get 

more information about what is happening and what the real life 

impacts are. 

So with that, are there any other members who seek to make an 

opening statement? We have probably gone a little beyond what we 

would ordinarily do in opening statements at a subcommittee level, 

but this is an issue that even the attendance suggests is an issue 

that people recognize as important. And so I apologize to all of 

those in attendance if they haven’t wanted to hear these opinions, 

but it sets the basis for our moving forward. 

Without objection, all other members and members who have 

made opening statements, their full opening statements will be 

made a part of the record, if they wish to submit opening statements. 

We will now introduce the members of the first hearing panel, 

and without objection, the witnesses’ written statements will be 

made a part of the record, and each witness will be recognized for 

a 5-minute summary of their testimony. 

I am going to recognize my good friend from Florida, Mr. Klein, 

to do his ‘‘all-politics-is-local’’ introduction of his State insurance 

commissioner. Mr. Klein? 

Mr. KLEIN. Thank you, Mr. Chairman. 

I appreciate that opportunity, having served in the Florida legislature for 14 years and having the privilege of serving with one of 

our panelists today, Kevin McCarty, who is the commissioner of the 

Office of Insurance Regulation in Florida. We have been faced with 

a number of complicated insurance issues in Florida, some of which 

have been taken up by this committee, and of course today’s issue 

is just another one that requires some expertise of a broad variety. 

I think that Mr. McCarty, with his work in our Department of 

Labor and Employment Security, and his work on worker’s compensation issues, will be very helpful. 

He has worked in our department for many, many years. He 

helped the investigation and response following the devastation of 

Hurricane Andrew. He became our first insurance commissioner, 

appointed in 2003, and has served in that capacity ever since, but 

particularly for today’s purposes, he is very active with the NaVerDate Aug 31 2005 17:22 Aug 28, 2008 Jkt 043699 PO 00000 Frm 00019 Fmt 6633 Sfmt 6633 K:\DOCS\43699.TXT TERRIE
12 

tional Association of Insurance Commissioners, which as we all 

know, is our 50-State member organization that gives us the State 

perspective, and it is very valuable when we are establishing Federal policy. 

So I just want to welcome Commissioner McCarty, and I look forward to his and our other panelists’ comments. 

Chairman WATT. I thank Mr. McCarty for being here also. I will 

proceed with introducing the other two witnesses on the first panel, 

and then I would like to go back and take Ms. Waters’ opening 

statement, if that is okay with the members. 

The first witness on this panel is Ms. Lydia Parnes, the Director 

of the Bureau of Consumer Protection at the Federal Trade Commission. All of the Commissioners were tied up in a meeting today, 

and asked us to allow Ms. Parnes to testify on behalf of the FTC, 

and we told them that we thought she would do a better job anyway. 

[Laughter] 

Chairman WATT. So we thank her for being here. 

The third witness on this first panel will be the Honorable 

George J. Keiser, State Representative of the State of North Dakota, who will be testifying on behalf of the National Conference 

of Insurance Legislators. We welcome all of the witnesses. 

Without objection, I would like to deviate and go back and take 

the opening statement of Ms. Waters, who was just able to get 

here. We thank her for being here; she is the lead sponsor of one 

of the two bills that we are having the hearing about today. I recognize the gentlelady for 5 minutes. 

Ms. WATERS. Thank you very much, Mr. Chairman. I certainly 

thank you for convening this second hearing on the impact of credit-based insurance scores on the availability and affordability of insurance. 

The first hearing you held on this topic last October was very enlightening, but also troubling. In fact, I was so disturbed by some 

of the testimony that I, along with Mr. Gutierrez, introduced H.R. 

6062, the Personal Lines of Insurance Fairness Act of 2008, to ban 

the practice of using credit scores in the underwriting or rating of 

insurance premiums. 

I am looking forward to hearing our witnesses’ testimony on this 

topic, but I must say that the findings from the first hearing deeply 

concerned me. The hearing covered a report released in July 2007 

by the Federal Trade Commission. The report found that creditbased insurance scores, which are developed and used by the insurance industry, serve as a proxy for race in three out of four lines 

of automobile insurance. 

Specifically, the report found that when credit-based insurance 

scores are used to predict claims risk, the predicted risk of African 

Americans and Hispanics increases by 10 percent and 4.2 percent, 

respectively. Conversely, the predicted risk for whites decreases by 

1.6 percent. 

To address the proxy issue, Mr. Gutierrez and Mr. Watt introduced, of course, as you have already said, legislation that would 

prohibit the use of credit scores for insurance underwriting when 

a proxy effect is found. 

13 

However, I must disagree with this approach. While we must do 

something to address the disproportionate racial impact of this 

practice, I am also concerned about the overall fairness of this 

practice. Specifically, credit scores have little, if no bearing on how 

likely a person is to have a car accident, to break speed limits, or 

to otherwise engage in risky driving behavior that could result in 

an insurance claim. 

I know that the industry maintains that there is some correlation between low credit scores and increased claims risk; however, 

a correlation does not imply causation. 

I wonder if we would permit other possible correlations, no matter how unrelated to claims risk, to be used to set insurance premiums. For example, if research is found that there was a correlation between zodiac signs and increased claims risks, would it be 

appropriate to allow such a correlation to be used as a metric for 

setting insurance premiums? 

To make someone pay more for insurance because of a situation 

in their financial circumstances that has nothing to do with their 

risk as a poor driver or irresponsible homeowner is simply unfair. 

It is simply unfair. It is unfair to recent immigrants, to the elderly, 

and to low-income Americans, all of whom have little credit history. 

Furthermore, it is unfair to those Americans who have been hit 

by the foreclosure crisis, and are now struggling to rebuild or to reestablish their credit. 

I could go and on, talking about whom all it is unfair to, but recently, friends of mine were hit with an extraordinary health crisis. 

They had paid their bills all of their lives and done well, and because of the burden that were confronted with, they fell behind in 

their payments. And of course, their credit scores went down. 

They are good people. Should that credit score have any impact 

on their ability to purchase insurance? I don’t think so. Traditional 

underwriting standards worked with little problems for several decades before insurance companies began using them for underwriting purposes. 

I am interested to hear our witnesses explain why these standards were abandoned, and how they continue to justify the use of 

credit scores for underwriting, given the concerns I have raised. 

Thank you, Mr. Chairman. I appreciate your accommodating my 

coming in a little bit late, and I will yield back the balance of my 

time. 

Chairman WATT. I thank the gentlelady for being here both for 

the first hearing and for this hearing and for her proposed legislation. 

We are now ready to recognize the witnesses, and each one of 

you will be recognized for 5 minutes to give a summary of your 

written testimony. The green light will come on at the beginning, 

at 4 minutes a yellow light will come on, and at 5 minutes a red 

light will come on. We would ask you, at that point, to wrap up 

the thought that you are involved in. We do have a second panel 

and a number of members who wish to ask questions, so we want 

to try to keep this moving if we can. 

With that, I will recognize Ms. Lydia Parnes, Director of the Bureau of Consumer Protection at the Federal Trade Commission for 

a 5-minute opening statement. 

14 

STATEMENT OF LYDIA B. PARNES, DIRECTOR, BUREAU OF 

CONSUMER PROTECTION, FEDERAL TRADE COMMISSION 

Ms. PARNES. Thank you very much. Chairman Watt, Ranking 

Member Miller, and members of the subcommittee, I appreciate the 

opportunity to— 

Chairman WATT. Can you pull that microphone a little bit closer 

to you? And if somebody has an empty seat beside them, would 

they just kind of raise their hand, so that others who are standing 

might be able to take a seat? I think there are enough seats in here 

for everybody who is standing, unless you just want to stand. But 

if you do, I wish you wouldn’t stand, blocking the door. 

Pull the microphone very close to you, because I was having a 

little trouble hearing you. And make sure it is on. 

Ms. PARNES. Is it working now? 

Chairman WATT. Yes. 

Ms. PARNES. Better? 

Chairman WATT. Thank you. 

Ms. PARNES. Okay. Thank you. 

I do appreciate the opportunity to appear before you today, as 

you consider the impact of credit-based insurance scoring on the 

availability and affordability of insurance. As members of this subcommittee are aware, insurance companies have increasingly used 

credit-based insurance scores to decide whether and at what price 

to offer automobile and homeowners’ insurance to consumers. 

Industry representatives and other proponents contend that by 

using these scores, insurance companies charge consumers premiums that conform more closely to their individual risk of loss. 

However, consumer advocates, civil rights groups, and others believe that the use of these scores results in racial and ethnic minorities paying higher insurance premiums than other consumers. 

To provide insight on the effect of credit-based insurance scores, 

Congress, in FACTA, directed that the Commission study the effect 

of these scores on the availability and affordability of insurance, including the particular impact on racial and ethnic minorities. 

In 2007, the Commission released a report discussing the results 

of a study of the use and effect of credit-based insurance scores on 

consumers of automobile insurance. The FTC provided the subcommittee with views about this report during its testimony last 

October. Today, I am pleased to provide an update on the FTC’s 

ongoing study on the use and effect of credit-based insurance scores 

on consumers of homeowners’ insurance. 

Last week, the Commission approved a resolution authorizing 

the use of compulsory process to obtain data for this study. The 

FTC intends to issue orders to the nine largest homeowners’ insurance companies, representing roughly 60 percent of the market of 

private homeowners’ insurance in the United States in 2006. 

The FTC has placed on its Web site a draft order setting forth 

in detail the information it intends to seek from homeowners’ insurance companies. The Commission is seeking public comment for 

30 days on this draft order consistent with FACTA’s direction that 

the Agency consult with consumer groups, civil rights and housing 

groups, government officials, and the public at large on the design 

and methodology of these studies. 

15 

After receiving public comments and making appropriate revisions, the Commission will serve orders on the nine largest homeowners’ insurance firms in the United States. The FTC would be 

pleased to keep the subcommittee and its staff informed as the 

study progresses. 

I know, as you have mentioned, this subcommittee is considering 

two bills addressing the use of credit-based insurance scores. H.R. 

5633, the Nondiscriminatory Use of Consumer Reports and Consumer Information Act of 2008, would amend the Fair Credit Reporting Act to prohibit the furnishing or use of a credit-based insurance score if the Commission determines that the use of scores 

results in racial or ethnic discrimination or represents a proxy or 

proxy effect, per race or ethnicity. H.R. 6062 would ban the use of 

credit scores in insurance underwriting. 

The FTC has a longstanding commitment to law enforcement 

and education efforts in fair lending, and believes that it is vitally 

important to protect consumers from illegal discrimination based 

on race or ethnicity. 

The Commission, however, has deferred to Congress as to what 

legislative measures, if any, are appropriate in this area. I would 

note, however, that from a purely drafting perspective, H.R. 5633 

would impose liability based on the determinations of FTC econometric research studies. As discussed in greater detail in the Commission’s testimony, the FTC has concerns about using its studies 

as a trigger for liability. 

Thank you for your attention, and I would be pleased to answer 

any questions that you may have. 

[The prepared statement of Ms. Parnes can be found on page 173 

of the appendix.] 

Chairman WATT. Thank you so much for your testimony. 

Commissioner McCarty, you are recognized for 5 minutes. 

STATEMENT OF THE HONORABLE KEVIN MCCARTY, INSURANCE COMMISSIONER, STATE OF FLORIDA, ON BEHALF OF 

THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS (NAIC) 

Mr. MCCARTY. Chairman Watt, Ranking Member Miller, and 

members of the subcommittee, I want to thank you for the opportunity to testify on the use of credit-based insurance scores and the 

provision of personal line insurance products. I am Kevin McCarty, 

the Insurance Commissioner in Florida. I am also here representing the National Association of Insurance Commissioners. 

Proponents have argued over the years that credit scores are predictive of the future losses based on the insurance claims experience, and are a necessary and inexpensive underwriting tool. Critics argue that the use of credit scores discriminates against protected classes of people. 

Technology over the years has allowed insurance companies access to enormous amounts of new information, including credit reports. Although some of this information may show actuarial relationships with insurance claims, this does not automatically make 

it an appropriate, fair, and valid criteria for insurance purposes. 

The most notable example of this is the use of race-based rates. 

In 2002, the NAIC concluded several multi-State investigations on 

16 

companies that historically rated life insurance differently based on 

the race of the applicant. 

Even today, Caucasians born in the United States have a longer 

life expectancy than African Americans. Based purely on this actuarial science, this would indicate a higher premium for life insurance. While the outcome of African Americans paying more is correct from an actuarial perspective, it is certainly counter to equal 

protections for Americans and is an abhorrent public policy. 

The use of credit reports represents many potential problems. 

Consumer report studies show that 50 percent of the credit reports 

contained errors, which can be exacerbated today by the increased 

amount of identity theft and the proliferation of our access to credit. 

Thus, even if the methodologies were correct, it is possible that 

inaccuracies in the reports may in fact invalidate their use. 

Credit reports also disproportionately and negatively affect the 

recently divorced, recently naturalized citizens, the elderly, those of 

certain religious beliefs that do not believe in the use of credit, and 

younger individuals who have not established credit histories. 

The overwhelming problem with the use of credit scoring is the 

relationship between credit scores and race, ethnicity, and income. 

The 2004 Texas Insurance Department study previously referenced that African Americans have an average credit score of 10 

to 35 percent below that of Caucasians. Hispanic scores were 

roughly 5 to 25 percent below. 

I do not believe the insurance industry uses credit scoring to intentionally discriminate or impact minorities. Yet, recent empirical 

studies demonstrate a negative impact on these protected classes. 

I am also concerned about other tools that share many of the 

same characteristics of using credit scoring. A year ago, I held a 

public hearing in Florida on occupational and educational rating as 

an underwriting factor for private passenger autos. Testimony at 

the hearing and information gathered as a result of that indicated 

that insurers would refuse to study the underwriting practices on 

minorities and low-income consumers. 

I’m especially troubled by the growing use of occupational and 

educational rating, and would encourage the subcommittee to 

broaden the scope of its investigation to consider these unfair regulatory practices. 

The 2007 FTC report was very disappointing. The narrative appeared very one-sided in support of the predictive powers of credit 

scoring, while equally downplaying the negative impacts on protected classes of citizens. 

I did agree with one aspect of the FTC report, that the State insurance regulatory community has identified credit scoring as a 

problem and has taken action. As previously mentioned, 48 States 

have passed some legislation limiting the use of credit scoring. 

Many States have adopted laws that require regulators to have access to the internal operations of the credit-scoring models, that the 

decisions are not based solely on credit reports, and that consumers 

be notified of the use of these reports, and if there is any adverse 

decisions based on their credit scores. 

17 

It is my sincere desire that the Federal Government assist the 

States in its regulatory efforts to address this important issue and 

better protect our consumers. 

The proposed bill, H.R. 5633, has many favorable provisions. My 

colleagues around the country and I welcome a more comprehensive study by the Federal Trade Commission to determine if the 

use of credit reports disparately impacts minorities and does in fact 

create a proxy effect. 

I am also personally in favor of H.R. 6062, which implicitly accepts the notion that credit scoring disparately impacts minorities 

based on a 2007 study. 

Thank you for holding this hearing and for inviting me to participate. I look forward to your continued leadership on this very important consumer protection issue. 

[The prepared statement of Commissioner McCarty can be found 

on page 112 of the appendix.] 

Chairman WATT. Thank you so much for your testimony. 

Representative Keiser, State Representative, State of North Dakota, is recognized for 5 minutes. 

STATEMENT OF THE HONORABLE GEORGE J. KEISER, REPRESENTATIVE, STATE OF NORTH DAKOTA, ON BEHALF OF 

THE NATIONAL CONFERENCE OF INSURANCE LEGISLATORS 

(NCOIL) 

Mr. KEISER. Chairman Watt, Ranking Member Miller, and— 

Chairman WATT. Pull that microphone closer to you. 

Mr. KEISER. Thank you very much for inviting NCOIL to participate in this process. 

Using objective methods, which are blind to ethnicity, gender, income, and other factors, credit scoring may offer a consistent, accurate, and valid way to underwrite and rate risk, and may mean 

lower prices for many consumers, primarily those with lower risk. 

However, NCOIL has taken a position that as State legislators, 

we are concerned about any abuses that might occur relative to the 

application of the credit scores. We encourage laws that understand 

and accommodate and benefit consumers. For example, our model 

has looked at the impact on seniors, has looked at the impact on 

young people, has addressed the situation where people have an extreme financial crisis occur in their life, and we have attempted to 

adopt that and address that. 

There are 26 States which have currently adopted the NCOIL 

model that has been developed and it appears to be working relatively well in those States. We believe that an appropriate approach is to allow the States to take the NCOIL model and to modify it when appropriate for their States. 

Well, what is the NCOIL model and what does it do? The NCOIL 

model is non-discriminatory. It assists the young, old, and those 

who suffer extraordinary events, and requires the provision of updated credit information. It goes beyond Federal law by prohibiting 

insurers from calculating scores based on income, gender, address, 

zip code, ethnic group, religion, marital status, or nationality. It 

also prohibits denying, canceling, or non-renewing coverage due 

solely to a credit score, or from basing renewal rates solely on credit. 

18 

Consumer protection under the NCOIL language, an insurer 

must use data taken within 90 days from the time of adverse action. It must be disclosed to the consumer that when adverse action 

is taken, a consumer has the right to appeal or object to it. The 

insurance companies are required to review any objection and to 

address it. 

Relative to consumers, for young people, for old people who don’t 

have credit—many of the panelists in their opening comments addressed that—the NCOIL model requires either in the cases of 

what would term ‘‘thin credit’’ that the credit be treated either as 

neutral on the credit score or in a positive manner. 

Inquiries are another big issue relative to credit scores. The 

NCOIL model offers common sense restrictions on how insurers 

can treat inquiries the credit card companies make before sending 

out promotional offers; inquiries based on consumers wisely shopping around for deals on auto and home loans; collection accounts 

related to sickness or other medical events; and bad credit resulting from extraordinary events like divorce, illness, or death of a 

spouse, as mentioned earlier. 

The NCOIL model says that insurers can give these extraordinary victims a credit pass in those situations. The insurer must 

re-underwrite and re-rate using new data. If the consumer has 

overpaid as a result of a mistake made, then they are eligible for 

a credit or refund for that amount. 

If the insurer does take an adverse action due to credit, the insurer must give up to four good reasons why. The insurer must be 

clear up-front that credit will be used. 

In conclusion, we appreciate the work of the subcommittee to ensure that credit history is used fairly. The 26 States regulating 

credit scoring based on the NCOIL model have responded effectively to an issue demanding a timely solution. States as diverse 

as New York, North Dakota, Texas, and Maine have successfully 

used this model to meet their different demographics. 

We ask that you recognize the efforts States have made to balance consumer protection with the need for healthy insurance markets and that one-size-fits-all doesn’t work. 

Federal legislation that would satisfy the laws of these States is 

unneeded and may actually bring higher rates for consumers who 

are benefitting from their good credit. 

Thank you for the opportunity to appear, and NCOIL looks forward to working with your committee, Mr. Chairman. 

[The prepared statement of Mr. Keiser can be found on page 101 

of the appendix.] 

Chairman WATT. Thank you so much for your testimony, and I 

thank all of the witnesses for being here today. 

I will now recognize each member of the subcommittee for questions of this panel, and I will recognize myself for 5 minutes. I may 

be a little aggressive in enforcing the 5 minutes against us, since 

we have a second panel to go after this panel, also. 

Representative Keiser, how, if at all, would you distinguish between this, the use of credit scoring here, and the public policy position that we have taken with respect to life insurance, where 

there is an actuarial, predictive documented relationship? We have 

said that as a matter of public policy, this is unacceptable; and 

19 

even more recently in the House at least, and I think maybe even 

in the Senate, we have passed a bill that prohibits genetic information from being used. How do you distinguish this from that, if you 

are able to do that? 

Mr. KEISER. Well, Mr. Chairman, I’m not sure that I am 100 percent qualified to answer that question. But let me say that NCOIL, 

as the policymakers in the State on insurance issues, is extremely 

concerned in protecting valid predictors of risk, whatever they 

might be— 

Chairman WATT. Even if it is race— 

Mr. KEISER. Let me just finish. If they can validly predict risk— 

and I question, although it’s done, that grade point averages for 

high school students can be a valid predictor of risk for insurance 

companies, that family history can be a valid predictor for health, 

when I have an application for life insurance or health insurance; 

that age can be a valid predictor—those are all valid predictors, we 

are committed to protecting the industry’s opportunity to use valid 

predictors and at the same time protecting the consumer to ensure 

that invalid application of predictors doesn’t occur. 

In the NCOIL model, what we attempted to do— 

Chairman WATT. I understand that. You are going back, and I 

only have 5 minutes, so I am not trying to argue with you on this; 

I can’t distinguish these things. 

Let me also, just as a factual backdrop, get you and Mr. 

McCarty, if you would, to distinguish between—or is there a distinction between being a valid predictor of risk versus a valid predictor of claims? Which one have you determined that credit scores 

are valid predictors of? 

Mr. KEISER. Mr. Chairman, I’ll answer first, and then Commissioner McCarty can answer. 

Chairman WATT. Go right ahead. 

Mr. KEISER. It is my understanding that it is a valid predictor 

of claims that— 

Chairman WATT. Okay— 

Mr. KEISER. That credit score is valid predictor of claims— 

Chairman WATT. Okay. And that is different, is it not, from 

being a valid predictor of risk? 

Mr. KEISER. Mr. Chairman, from the standpoint of risk of having 

an accident or something, yes, I would agree. But from an insurance company’s management standpoint, I would argue that the 

claim itself is the exposure to risk that the insurance company has. 

Chairman WATT. So if there were other factors that kept people, 

even if they were in automobile accidents from making a claim, the 

fact that this predicts their willingness to make a claim, which is 

what the insurance policy was written for, would be acceptable 

under what you are saying. 

Mr. KEISER. If I understand your question—I’m not sure, Mr. 

Chairman—but my insurance agent oftentimes tells me, ‘‘Even 

though you have a claim, you sometimes are better off to pay that 

auto damage yourself, because it is a relatively minor claim, than 

to apply it to your policy and do the deductible plus $100 or $200.’’ 

I am well-served from a responsibility standpoint— 

Chairman WATT. You are well-served, but would a poor person 

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20 

served? I guess that is the question. Can you just comment on that, 

Mr. McCarty? And then I am going to— 

Mr. MCCARTY. Thank you, Mr. Chairman. I agree with my colleague that the measurement is a measurement of claims. There’s 

no evidence to suggest that regardless of your credit score, you 

have more accidents. Certainly a reasonable analysis of that data 

is that credit scoring is really a proxy for your economic class, or 

your income; and as a consequence, if you have lower income, you 

are not able do to as the Representative had suggested, to pay out 

of pocket. And as a consequence, actually people with more money 

will forego making a claim, knowing that their insurance premiums 

may go up in the future, and they have the ability to make that 

economic choice. Lower-income people do not have that option. 

And so what is interesting about the analysis done by the Federal Trade Commission is addressing the issue of claims, which I 

think can be reasonably explained by you having enough wealth to 

pay for those claims out of pocket. 

Chairman WATT. I recognize the ranking member for 5 minutes. 

Mr. MILLER. Thank you very much. 

Ms. Parnes, you talked about the individuals, the Ph.D.’s in economics, and you consulted with community groups and civil rights 

groups and such in your report. Is it fair to say that you’re confident in the integrity of your initial report, that you examined the 

analysis you performed and the findings are correct in that report? 

Ms. PARNES. The Commission definitely was confident in the reliability of its initial report. And you know that one of our Commissioners did dissent from that. 

Mr. MILLER. Is it fair to say that the FTC doesn’t support the 

legislation, that it would ban credit scores? 

Ms. PARNES. The Commission hasn’t taken a position on the legislation. 

Mr. MILLER. Okay. You heard Chairman Watt say that nobody 

has asked you to use subpoena power. When we previously talked 

to the FTC, they said that the industry was very cooperative in 

providing information necessary to prepare the report. Is that correct? 

Ms. PARNES. The industry has been cooperative— 

Mr. MILLER. Then why would you use subpoena powers? 

Ms. PARNES. FTC studies are important, we think, both in terms 

of the actual reliability of the study, and also in the perception of 

its reliability— 

Mr. MILLER. So it’s not for the quality of the material; it’s for 

perceptions reasons that you are doing it? 

Ms. PARNES. Well, there was certainly a lot of concern expressed 

about our initial report and whether it was adequate, because we 

obtained the information voluntarily and for a host of procedural 

reasons. We feel that by using our subpoena authority, we can address those concerns. 

And I should add that we use subpoenas often when we are collecting information in studies, and it certainly isn’t meant to suggest that the industry that we’re working with is in any way uncooperative. 

Mr. MILLER. Did you review the Federal Reserve Board study? 

Are you familiar with it? 

21 

Ms. PARNES. I am somewhat familiar with the Board’s study. 

Mr. MILLER. Because it found that some elderly have better 

scores, and if this legislation is passed, it would actually harm the 

elderly. Is that a fair statement? 

Ms. PARNES. I know that it found that the results were somewhat similar to the results that the Commission— 

Mr. MILLER. Okay. Mr. McCarty, you said you’re representing 

the National Association of Insurance Commissioners? Do they 

agree with your opinion? They supported that? Have they supported your opinion today? 

Mr. MCCARTY. The National Association of Insurance Commissioners supports the testimony today with regard to the need to 

continue to study this issue, and is deeply concerned about— 

Mr. MILLER. Yes, but that’s not what you said. You spoke against 

it. And if this legislation is passed, it would overturn every State 

law except Hawaii’s. Even your own States would pre-empt it. 

Mr. MCCARTY. That is correct. The NAIC’s position is not supporting— 

Mr. MILLER. But you said you were representing them, and that’s 

I don’t really think factual, in their opinion. I looked at data that 

said after all the States in the jurisdiction reviewed the use of credit scores extensively, that it’s basically true that only one State out 

of 56 jurisdictions have actually banned the use of credit scores, including yours. 

Mr. MCCARTY. I said I personally favor H.R. 6062. 

Mr. MILLER. Okay. I just want to make sure the record is very 

clear, that is not the position of the National Association of Insurance Commissioners. In fact, as I said, out of 56 jurisdictions, including States, only one State bans it, so there is a huge difference 

between that and—I mean this would overturn your own State law. 

Mr. MCCARTY. Yes, I understand that. And I want to clear— 

Mr. MILLER. Well, you’re going to have fun going back home, 

aren’t you, on this one? That is going to be an interesting process. 

Mr. MCCARTY. I did want to clarify that with regard to H.R. 

6062, that was my personal view, not the view of the NAIC. 

Mr. MILLER. Yes. Okay. I have no problem with your personal 

opinion. I mean everybody has a right to one; I just didn’t want a 

perception to be created or anybody to think that you represented 

the opinion of the National Association of Insurance Commissioners. In fact, it seems to be quite the opposite; your own State 

legislators would disagree with your opinion today, based on what 

they voted into law. 

Mr. MCCARTY. The National Association supports continued 

study of this issue, and is deeply concerned about the disparate impact on minorities— 

Mr. MILLER. I have no problem with continued studies—that is 

what we are doing today— 

Mr. MCCARTY. And it supports H.R. 5633. 

Mr. MILLER. Mr. Keiser, you testified that the State legislators 

were initially skeptical about credit scores, but ultimately found 

that they increased availability and affordability for consumers, 

and they were racially blind, and to help insurers compete. Is that 

a fair statement? 

22 

Mr. KEISER. Representative Miller, that is actually as accurate a 

statement as I could make regarding that subject. Senator Craig 

Eiland from Texas— 

Mr. MILLER. My time is up, so just in closing, would you agree 

that if this were enacted, it would really harm seniors? In your 

opinion? 

Mr. KEISER. I could not agree more strongly, and also NCOIL opposes this legislation. 

Mr. MILLER. Thank you very much for your testimony. 

Chairman WATT. The gentleman from Illinois, Mr. Gutierrez, is 

recognized for 5 minutes. 

Mr. GUTIERREZ. Thank you very much, Mr. Chairman. Director 

Parnes, it is my understanding that the FTC shared advance copies 

of its draft report with the insurance trade associations, but not 

with the insurance regulatory community. Is that the case? And if 

so, what was the reason behind this decision? 

Ms. PARNES. That is not the case. 

Mr. GUTIERREZ. You absolutely deny that the FTC shared this 

with the insurance industry, and not with the regulatory community? Just answer yes or no. 

Ms. PARNES. Well, certainly as far as I know— 

Mr. GUTIERREZ. Thank you. Director Parnes, the July 2007 FTC 

report found—I read it—that credit-based insurance scores are a 

proxy, or a substitute for race or ethnicity in three out of four lines 

of automobile insurance: Collision; comprehensive; and bodily injury. But in your written testimony for this hearing this morning, 

you state that the FTC ‘‘found that credit-based insurance scores 

appear to have little effect as a proxy.’’ Your written testimony appears to be backing away from the conclusions of the FTC’s report. 

I hope that is not the case, but I am going to ask you, for the 

record, do you stand by the original FTC report? 

Ms. PARNES. The Commission certainly does stand behind the 

original report. I think that it may be worth explaining a little 

about this proxy effect. Proxy, when used in usual conversation, it’s 

kind of like an absolute substitute, something substitutes for another thing. It’s an all or nothing. And when we use proxy effect 

in the study, we were talking about the effect, as you understand 

of course, of a statistical analysis— 

Mr. GUTIERREZ. I guess I understand that. And we only have 5 

minutes. But when I read the FTC report, and I read your comments and your written statement for this committee today, they 

seem to be different. They seem to be backing away. They seem to 

be kind of light, kind of like, ‘‘Well, let me reinterpret, let me reevaluate what the FTC really meant when they issued their report.’’ 

They seem different, and I think that most people might—so I 

just wanted to ask you if they’re different, because I read the original report, which gave birth to the legislation that we’re proposing. 

I mean we didn’t just base it on thin air; we read your report. And 

today it seems like, ‘‘Well, yes, it’s a proxy, but it’s no big deal. It’s 

really not that relevant; it’s really not that important.’’ That seems 

to be the way I interpret what you bring to the committee today, 

vis-a-vis what the committee heard when the FTC first reported. 

So I just thought I would ask you. 

23 

Ms. PARNES. The Agency has no intent to back away from its earlier report. 

Mr. GUTIERREZ. Mr. McCarty, in your written testimony, you referred to ‘‘economic advantages’’ to insurance companies from using 

credit-based insurance scores that have largely been ignored by empirical studies, including the 2007 FTC study. What are these economic advantages, and why do they deserve any scrutiny? 

Mr. MCCARTY. Well, I think the insurance industry and insurance trade associations would argue that using credit scoring is an 

inexpensive underwriting tool, that it would be more expensive to 

underwrite if they did not have the ability to use credit scoring 

freely as one of many tools in their underwriting situation. 

The concern is notwithstanding that it is predictive, and that it 

is inexpensive, if you strike the balances, what impact does it have 

if there is a disparate impact on races, and how much of that is 

tolerable? 

Mr. GUTIERREZ. I just wanted to share with you, Mr. McCarty, 

that when I read your testimony, I fully understood the difference 

between your Association and their position and your personal position here today. So I wouldn’t make a big deal out of it. We are 

elected officials and we are people who represent different views. 

Let me ask Mr. McCarty, do you have any information that the 

FTC may have shared their report with the insurance industry? 

Mr. MCCARTY. That was our understanding in our Association, 

that the report had been shared. I have no evidence to support 

that, but that was—it was a common understanding. And the reason it came to our attention because we would certainly would have 

welcomed the opportunity—as the consumer protectors for the 

State insurance regulators, would have welcomed the opportunity 

to have reviewed the report in advance as well, to provide some 

guidance. And hopefully we’ll have that opportunity to work collaboratively with the FTC in the future. 

Mr. GUTIERREZ. All right. Let me just end by saying that I thank 

you all for your testimony. I have been here for 16 years, and I assure you that the insurance industry and the financial services industry has no lack of power, no lack of influence on the members 

of this committee, and no difficulty in getting their way. 

That has been my experience during the last 16 years. So I am 

sorry if I am not real sorry for the insurance industry or for questioning their motivations or their tactics. Thank you very much. 

Chairman WATT. I thank the gentleman. The gentleman from 

North Carolina, Mr. McHenry, is recognized for 5 minutes. 

Mr. MCHENRY. I thank the chairman. 

Now, Representative Keiser, the Federal Reserve shows that— 

one of their studies shows that seniors tend to have higher credit 

scores. I don’t know if you have seen that fact. But if this legislation were in place, could it cause higher insurance rates for those 

with higher credit scores? 

Mr. KEISER. Mr. Chairman, and Representative McHenry, I 

think that is the important point to be made today, that if this legislation were to pass, there would be losers and there would be 

winners. Those people who currently are having the advantage of 

having good credit are going to pay higher premiums. Those who 

have, for whatever reason, not as good a credit score, are going to 

24 

pay less. There’s no free lunch. The insurance companies are going 

to make their money. 

Now the question is: Do you reward good behavior in the form 

of good credit? Good credit is a fine thing. And again, NCOIL has 

been very deliberative on this, and we have attempted to protect 

those unique situations that occur. Young people, old people with 

no credit line; those people who have extraordinary circumstances; 

those people—and I went through it in my testimony to Mr. Chairman—but the point is there is a way to address application of credit scores to make it as reasonable as is possible and as fair as is 

possible without throwing credit scores out, to the disadvantage of 

some groups who have worked very hard to establish good credit. 

Mr. MCHENRY. Commissioner McCarty, do you have a response 

to that? 

Mr. MCCARTY. I’m sorry. Would you repeat the question? 

Mr. MCHENRY. Do you have a response to that? 

Mr. MCCARTY. I don’t recall your question, sir. I apologize. 

Mr. MCHENRY. If you were actually listening to Representative 

Keiser, I’m asking if you have a response to what he just said. I 

don’t know if you were doing what many behind you were doing, 

listening to something else. But— 

Mr. MCCARTY. No. What our concern is with regard to credit 

scoring is first of all with it in terms of its potential impact and 

redistribution with regard to senior citizens; our evidence and our 

research has found that many senior citizens have thin credit files. 

My grandfather, for instance, didn’t have a credit card; he paid his 

rent in cash. His credit score probably would not be good, although 

he was certainly financially responsible. 

But the Representative is absolutely right. If you eliminate an 

underwriting tool for determination of premiums paid, there are 

going to be some winners and some losers. And what the balance 

is of that is if credit scoring is used and it has a disparate impact 

on—racially discriminates against protected classes of people, 

where do the public policymakers strike a balance— 

Mr. MCHENRY. So is your issue with the insurer’s use of a credit 

score? Or is it your belief that a credit score—or maybe both—that 

a credit score has an innate racial component to it? 

Mr. MCCARTY. My concern is both. Historically, insurance has 

been for two purposes: Number one, to provide for financial security; and number two, loss prevention. And with regard to loss prevention, I don’t see how credit scoring really supports that insurance principle, since what we want to do is to get people to drive 

more responsibly. And I don’t see how improving your credit score 

serves the purpose of loss reduction. 

Mr. MCHENRY. But do people not also have to pay for insurance? 

Therefore, their record of paying or not paying in other financial 

service products could be an indicator of whether or not they will 

pay for a renewal of their insurance. 

Mr. MCCARTY. Well, that’s possible, but the insurance premium 

is paid up-front. 

Mr. MCHENRY. It is— 

Mr. MCCARTY. Yes— 

25 

Mr. MCHENRY. But under State mandates, doesn’t an insurer 

have to cover them for 30 days? Isn’t there a gap by which insurers 

have to cover? 

Mr. MCCARTY. Failure to pay your policy will result in cancellation of your policy. 

Mr. MCHENRY. But you have to give them 30 days to do that. 

Mr. MCCARTY. You give them a notification, but they will notify 

you if you don’t make that payment. They are not behind in terms 

of collecting the premium. They will cancel you and earn the premium that you have paid up to that point. 

Mr. MCHENRY. There should be an expense associated with that 

as well, if you’re slow to pay or you have to send out multiple notices. So wouldn’t an insurer, wouldn’t they be wise to know that, 

up-front? 

Mr. MCCARTY. Yes, they would be. 

Mr. MCHENRY. So wouldn’t a credit score be useful, then? 

Mr. MCCARTY. Would a credit score be useful? In my opinion, I 

think that there are enough built-in costs and expenses, if you premium finance, that the companies who use premium financing are 

able to secure and to pay for those additional charges. 

Mr. MCHENRY. Interesting. Thank you, Mr. Chairman. 

Chairman WATT. Thank you. 

The gentlelady from California, Ms. Waters, is recognized for 5 

minutes. 

Ms. WATERS. Thank you very much. 

Ms. Parnes, I want to know how credit scoring is balanced 

against the experiences of the driver; for example, in automobile insurance, I would think that the indicators of whether or not you 

have a lot of tickets, you have had accidents, etc., plays a role. 

What role does credit scoring play in the decisionmaking? 

Ms. PARNES. I don’t think that our study told us exactly what 

role it played. 

Ms. WATERS. Did you ask anybody? Without a study? You are the 

Federal Trade Commission. Do you know whether or not they make 

these decisions solely on credit scores, or is it a combination of factors? 

Ms. PARNES. It’s based on a combination of factors. 

Ms. WATERS. How do you know? 

Ms. PARNES. We know that from talking to people in— 

Ms. WATERS. What are the other factors? 

Ms. PARNES. The other factors like— 

Ms. WATERS. Who knows this information? What are the other 

factors? How do they do this? 

Mr. MCCARTY. They do it on age, your driving history, and 

claims made in the past. There is a myriad of factors that could 

be used. Most States have passed some laws that say that you cannot use credit scoring as the sole factor. But that can be somewhat 

misleading. 

It could be the predominant factor, and in some insurance companies—not all—but some insurance companies heavily rely on it 

because of its predictability. 

Ms. WATERS. The Honorable George Keiser, do you know the 

weight that credit scores have on the decision of the cost of insurance? How heavily does it weigh? 

26 

Mr. KEISER. Mr. Chairman and Representative Waters, our insurance commissioner could answer that question, because everything is filed in our insurance— 

Ms. WATERS. Are there any companies who use it solely? Or is 

it 50 percent of the decision? Is it 75 percent of the decision? How 

does it work? 

Mr. KEISER. In our State, and I believe in all States that have 

adopted the NCOIL model—and that would be 26 States at least— 

it cannot be used solely. And we have by definition said ‘‘solely’’ 

would be 51 percent cannot be weighted. So it could be a significant 

weighting factor, but I cannot answer the specific combination of 

factors used or the weights applied. 

Ms. WATERS. All right. Let’s see. Mr. McCarty, would you agree 

that if you use credit scoring solely or it’s heavily weighted to make 

the decision that it reduces your costs of investigations and of collecting and gathering information, so that you can make determination about one’s ability to pay? Does it reduce the costs, the 

personnel costs, the investigation costs, the vetting costs? 

Mr. MCCARTY. According to industry spokesmen and industry 

trade associations, it is substantially cheaper to use a credit scoring 

mechanism than it is to do traditional underwriting. 

Ms. WATERS. Well, you know, I have looked at this, and I have 

tried to figure out why there is an argument that somehow credit 

scoring is a strong indicator. And it just doesn’t make good sense 

to me. I cannot make sense out of it. And I don’t even know why 

the FTC would spend the taxpayer’s money, except I guess you 

were asked to do it. It just doesn’t make good sense. 

So I am trying to figure out why. And as I listen to all of this, 

I recognize that the cost of reviewing an application and determining what kind of experiences these drivers in automobile insurance have had, whether or not—it costs a lot of money to do that. 

And so to just go to the credit score really reduces the cost of the 

insurance company. And I’m beginning to believe that’s really what 

this is all about. 

Mr. Keiser, you mentioned that even GPAs are a good indicator 

of something. Did you say that? 

Mr. KEISER. Representative, absolutely. In our State, good students get a discount. 

Ms. WATERS. So you are telling me that a smart student is a better driver. 

Mr. KEISER. Good students can get a discount. 

Ms. WATERS. Having nothing to do with their driving— 

Mr. KEISER. And good students— 

Ms. WATERS. Just a moment— 

Mr. KEISER. That is correct. 

Ms. WATERS. Had nothing to do with their driving record. A low 

GPA indicates that you’re not as good a driver. Is that right? 

Mr. KEISER. It is a predictor that is used in some cases. 

Ms. WATERS. Well, that is absolutely nonsensical. I know some 

of the smartest people, I mean geniuses, who are just stupid. I 

mean they make good grades, but they can’t find their way to the 

toilet. And if you’re telling me that’s an indicator, I’m more convinced than ever that this is not good. And so—my time is up. 

27 

Enough said. I’m moving forward with my legislation. This doesn’t 

make good sense. Thank you. 

Chairman WATT. I thank the gentlelady for her testimony. I was 

going to withhold this until the second panel, but since the 

gentlelady made inquiries, I wanted to ask unanimous consent to 

submit information from the Web sites of three insurance companies: AllState; Traveler’s; and State Farm, on what factors they 

consider in determining rates, and I would invite the gentlelady to 

take a look at these. She will find them very unenlightening in trying to figure out what factors are used. 

Mr. MILLER. At the same time—I would like to submit— 

Chairman WATT. I recognize Mr. Miller for— 

Mr. MILLER. —a letter from the American Insurance Association, 

the Financial Services Roundtable, the U.S. Chamber of Commerce, 

the Independent Insurance Agents and Brokers of America, the National Association of Mutual Insurance Companies, and the Independent Insurance Agents and Brokers of America. I would also 

like to submit: a statement from the National Association of Mutual Insurance Companies; a statement from Michael J. Miller and 

EPIC Consulting; and a statement from the Property Casualty Insurers Association of America. 

Chairman WATT. I have those, sir, and we will make sure they 

get in the record, without objection. 

Mr. MILLER. Thank you. 

Chairman WATT. Mr. Boren from Oklahoma is recognized. 

Mr. BOREN. Thank you, Mr.— 

Chairman WATT. I’m sorry. We have—somebody else came in 

that I didn’t see. Mr. Barrett from South Carolina is recognized for 

5 minutes. 

Mr. BARRETT. Thank you, Mr. Chairman. I would like to yield 30 

seconds to Mr. Miller from California. 

Mr. MILLER. Yes. I just wanted to follow up. Mr. McCarthy, you 

made an interesting comment. You said that the industry relies 

upon credit scores because of its predictability. It’s proven to be 

right. Nobody knows why, but it’s proven to be a predictable measure of determining risk. Is that not a fair statement? 

Mr. MCCARTY. Yes. There’s a strong correlation between credit 

scores and claims. 

Mr. MILLER. Yes. 

Mr. MCCARTY. Predication of claims. 

Mr. MILLER. And that’s— 

Mr. MCCARTY. Not necessarily accidents, but claims. 

Mr. MILLER. Okay. But claims. I think that speaks volumes. 

Chairman WATT. Would the gentleman yield just for a second? 

Mr. BARRETT. Absolutely, Mr. Chairman. 

Chairman WATT. This is a good time to—Florida did a study 

about this claims versus risk issue, in which you found that doctors, accountants, and lawyers all have higher accident rates, yet 

they get lower rates because of their occupation and education. And 

your study found that 50 percent of eligible claims are not reported 

for fear of a rise in insurance premiums. Does that play into your 

response to Mr. Miller’s question? 

Mr. MCCARTY. Yes, sir. And this refers back to a public hearing 

we had with regard to occupation and education used as criteria, 

28 

where your doctors, lawyers, etc., who may have a higher claims 

experience, get more favorable treatment with regard to the cost of 

premiums. Those with lower education levels and with other occupations like mechanics, etc., pay substantially more, even though 

the evidence does not support a higher loss ratio. There may be 

more frequent claims, but that again can be explained by the fact 

that higher-income individual policyholders have the wherewithal 

to pay them, whereas lower-income folks will file a claim. 

Mr. MILLER. Well, Mr. Chairman, I’m convinced we need to introduce a bill outlawing attorneys, without a doubt. We need to stop 

those people. 

Chairman WATT. You mean just attorneys? Not doctors, or accountants, or— 

Mr. MILLER. I might need a doctor. I don’t need an attorney. 

Chairman WATT. Oh, okay. 

I thank the gentleman. I appreciate him, and I will ask unanimous consent for 2 additional minutes for the gentleman, so that 

he is not deprived of his time. 

Mr. BARRETT. Outstanding. Thank you, Mr. Chairman. 

Gentleman and lady, thank you so much for being here today. I 

am certainly a free market believer. I think the less government 

interference, the better. And I am concerned when we have government mandates, how that affects the market in the redistribution. 

I would like Ms. Parnes and Mr. Keiser to answer this: Do you 

think if we ban the use of credit scoring, that we might have a socialization, meaning the lower-risked folks subsidizing the cost of 

the folks who have a higher credit rating? Either one of you, or 

both of you, please. 

Mr. KEISER. I have already answered that and the answer is 

‘‘yes.’’ 

Mr. BARRETT. I apologize. Same thing. 

Ms. PARNES. As I have indicated earlier, the Commission has not 

taken a position on legislation, and really hasn’t considered what 

the impact of a ban would be. 

Mr. BARRETT. Okay. For all three of you, if you would please, 

let’s just say, for example, the credit-based insurance scoring is 

banned or curtailed, and we went with something different. First 

of all, what might that be? What is a better way to do that? And 

would it be less accurate than what we are using now or more accurate? Please answer that one, if you can. 

Mr. MCCARTY. Prior to the use of credit scoring, insurance companies had a long, mature history of looking at a variety of factors, 

including geographic area, the driving experience, number of years 

you have been insured, have you been continuously insured, your 

driving history, driving record, traffic violations, etc. Those have 

been historically used in the determination and underwriting of 

auto policies. Removing today immediately the use of credit scoring, since it’s used very heavily by the insurance industry, would 

be disruptive. That could be ameliorated to some extent by phasing 

it out over time. 

Mr. BARRETT. Mr. Keiser? 

Mr. KEISER. I would simply respond that, again, any valid measures that can be developed for predicting risk exposure claims 

should be developed for the benefit of consumers in our country. 

29 

On the other hand, again, we have to make sure that the abuses 

that can accompany any of these measures, whether it’s credit scoring or any other measure, not be allowed. 

Ms. PARNES. The Commission looked at other models, other possible models, and was not able to come up with one in its study. 

Mr. BARRETT. Okay. I can think of several different examples 

where government mandates rather than the free-market process 

have led to the consequences that we’re not looking for. In fact, the 

one that comes closest to mind is ethanol. We mandate certain 

things on ethanol, we monkey with the free market process, and all 

of a sudden food prices go up. 

Can you—in the financial realm, can you give me some examples 

of where government intervention in free market process has led 

to consequences where the government actually said that they were 

going to try to fix something, and the opposite consequence happened? Can you give me some examples, any of you? 

Mr. KEISER. Well, I think the most obvious one as a State legislator that comes to my mind, was welfare reform when it was federalized. The Federal Government was very quick to send it back 

to the States once it was entirely mismanaged at the Federal level. 

And the States have done a fairly good job with that. But in the 

case of the subject at hand, again, to tie the hands of the industry 

in terms of valid predictors will create some offset—and there is no 

alternative. 

The insurance companies, I don’t believe, are going to lose 

money. Somehow the cost will be shifted if this legislation were to 

pass. 

Mr. BARRETT. I see my time is up. Thank you, Mr. Chairman. 

Chairman WATT. I thank the gentleman. Mr. Boren from Oklahoma is recognized for 5 minutes. 

Mr. BOREN. Thank you, Mr. Chairman. I want to say thank you 

for allowing me to be on this subcommittee, and also, the Housing 

Subcommittee, with Ms. Waters. I am honored to join both of you, 

and I know we have worked on a lot of contentious issues over the 

past couple of years, and hopefully we can work together in the 

next few years. 

I have a couple of questions, very brief. First for Director Parnes, 

you kind of answered this earlier, but again I would like the answer. Did not the industry provide the data for auto and homeowners voluntarily? Did they come to the Commission and say, 

‘‘We’re going to bring this information voluntarily?’’ 

Ms. PARNES. The industry did provide the information for the 

auto insurance study voluntarily. We went to the industry, we were 

directed to do this study, and we talked to the industry about voluntary submissions. And we were able to reach agreement on that. 

Mr. BOREN. And did you respond formally to the industry? And 

if you didn’t, why did you not? 

Ms. PARNES. Respond formally? 

Mr. BOREN. Like in a letter, or some kind of formal response. If 

they said, ‘‘We’re going to provide for the homeowners’ study,’’ for 

instance. 

Ms. PARNES. Well, for the homeowners’ study, we began the process of discussing voluntary submissions. But it was shortly after we 

30 

began those discussions, the Commission made the decision that it 

would proceed through a subpoena process. 

Mr. BOREN. Do you think that is premature, to do that, when you 

have an industry that is basically begging you, saying, ‘‘Here is the 

information, so we’re going to take the added step to beat someone 

over the head when they have actually come to you.’’ That is really 

not the role of government to hurt someone when they are actually 

trying to help you and provide information. Is that correct? 

Ms. PARNES. Well, it certainly isn’t the role of government, and 

it’s not the approach that the Commission has taken. We do use 

these subpoenas typically when we’re doing industry-wide studies. 

And they’re not intended to suggest that the industry that we’re 

studying is not being cooperative. 

I think the Commission’s concern in the homeowners’ study, as 

indicated earlier, is that the value of Commission studies is really 

based on both their actual reliability and also the perception of 

their reliability. And there was a lot of concern expressed about the 

auto insurance study as not being reliable because the data was 

submitted voluntarily. 

The Commission supports the study, the Commission stands behind it, believes that the study is reliable; but in response to those 

concerns, decided to pursue information under subpoena for purposes of the homeowners’ insurance study. 

Mr. BOREN. Okay. One final one for you: Since there are questions as to the Commission’s legal authority under either Section 

6 of the FTC Act or Section 215 of the FACT Act to compel information from insurers generally or with regard to this specific 

study, is it possible that actually using these subpoenas would 

delay the study, or has delayed the study? 

Ms. PARNES. Well, we hope that it doesn’t delay the study. Certainly if the subpoenas are challenged, there could be some delay, 

but we will— 

Mr. BOREN. Do you know how long a delay that would be? Or, 

is there is a precedent? 

Ms. PARNES. I don’t, and I don’t know if they will be challenged, 

either. 

Mr. BOREN. Okay. That would be interesting to know if they 

would be challenged. 

I have a question for Commission McCarty. This is actually—I 

have an e-mail here from my State insurance commissioner, Kim 

Holland, who is a great friend of mine. And this is what her e-mail 

basically says: ‘‘Oklahoma’s experience suggests that the vast majority of our policyholders are not impacted, or actually save money 

due to credit scoring. We also prohibit most of the activities found 

objectionable by other regulators, such as—rates to be affected by 

race, gender, or no credit history.’’ Do you have a response to that? 

And you know, compare Oklahoma to maybe Florida. What are 

your thoughts? 

Mr. MCCARTY. Yes. I actually discussed this issue on the telephone with Commissioner Holland the other day, and she feels 

very strongly as long as there is a predictive value, that there is 

an argument to be made that you’re actually providing better value 

for a majority of consumers, that it is color-blind with regard to— 

or from the initial question, since the asking about the running of 

31 

a credit report does not ask the question up-front, so any consequential racial discrimination is not intentional. And that does 

represent a view within our organization. Other commissioners 

would share that view. I do not. 

Mr. BOREN. Well, I would love to ask more questions, but it looks 

like my time is up. Thank you all so much for your testimony. 

Chairman WATT. I thank the gentleman for his questions. Can 

I just have unanimous consent to ask Mr. Keiser one clarifying 

question? You said that the result of not using insurance scoring 

for this purpose would result in winners and losers; some people 

would be adjusted up, and some people would be adjusted down. 

But if that is a greater reflection of actual risk, are you suggesting 

that is a bad thing? 

Mr. KEISER. Mr. Chairman, I think if it is a valid predictor, and 

your committee, through the investigation, can determine that, if 

it is a valid predictor and it can be accomplished inexpensively, it 

diminishes, number one, the cost to the insured; and number two, 

if it’s a valid predictor, it gives those people for whom it validly 

predicts good credit a lower rate, those people with poor credit a 

higher rate. 

Chairman WATT. I appreciate that answer, but it is not responsive to the question I asked, unfortunately. 

Mr. KEISER. I apologize. I don’t understand— 

Chairman WATT. And I understood that you had testified to exactly what you just said. The question I’m asking is, if there are 

winners and losers as a result of using a different kind of mechanism other than credit-based insurance scoring, and you get a more 

accurate reflection of what the risks actually are, are you suggesting that is a bad thing? 

Mr. KEISER. Mr. Chairman, no. I don’t believe that measure— 

Chairman WATT. Okay. All right. I didn’t think you were. I just 

wanted to make sure that we got that on the record. We obviously 

know that there are winners and losers. And, as you say, insurance 

companies will try to find a way to make a profit; that is what they 

are in business for. But there is an also important factor here in 

trying to come up with a fair system that does not shift the burden 

as a result of unfairness in credit scoring to poorer people and minorities. And I wasn’t trying to trick you on that; I was just trying 

to make sure that I understood what you were saying in your testimony. 

Mr. MILLER. May I have one minute? 

Chairman WATT. Yes. 

Mr. MILLER. There are a couple of things I didn’t bring up. The 

State of Oregon decided they wanted to eliminate credit scores, and 

they went to the voters, and it was overturned 2 to 1. The people 

said, ‘‘No,’’ they think that’s a reasonable way to predict rates. New 

Jersey actually reversed itself when they went the other direction, 

and came back the other way. 

I guess the difference between what a lot of us are hearing, but 

even Mr. McCarty, you said that the industry relies upon credit 

scores because of its predictability as it applies to claims, and that 

is what we are looking at. The testimony I have heard today said 

that if we eliminated that, seniors are likely to be impacted unfairly by changing the requirements. So until I can find a better 

32 

way, or somebody presents a better way of predictability, it seems 

like the system today is working, and it is predictable. And if I 

thought it was discriminatory, I would absolutely oppose it. Thank 

you. I yield back. 

Chairman WATT. I thank the gentleman, and I wasn’t going to 

offer this until you raised the question. But— 

Mr. MILLER. Oh well, equal time. 

Chairman WATT. No. I’m just going to make a unanimous consent request to offer into the record, since you raised the question 

of the Oregon vote, the information about who paid for lobbying 

and the amounts that the insurance industry paid for lobbying in 

Oregon—just for the purpose of completeness of the record. 

Mr. MILLER. Well, those people voted for Obama, too, didn’t they? 

Something is wrong with that State. I can tell. I yield back. 

Chairman WATT. Thank you. I ask unanimous consent to put an 

article from USA Today, ‘‘Credit scores’ link to insurance rates tested,’’ by Christine Dugas, into the record. The article discusses what 

insurers spent opposing the use of credit scoring in insurance. 

Without objection, it is so ordered. 

We thank these witnesses for testifying. I think you have added 

immensely to our knowledge base here, and we will excuse you, 

and call up the second panel of witnesses. 

If I could ask the witnesses on the second panel to be seated? We 

seem to be missing one. In the interest of time, I am going to proceed with the introduction of the witnesses. I think Mr. Poe is here; 

he must have stepped out for a moment. He has returned. 

We are delighted to welcome our second panel of witnesses. They 

will testify in the following order: Mr. Bob Hunter, director of insurance of the Consumer Federation of America; Ms. Lisa Rice, vice 

president of the National Fair Housing Alliance; Mr. Eric Poe, chief 

operating officer of CURE Insurance, a New Jersey-based insurer; 

Mr. Charles Neeson, senior executive, personal lines products, 

Westfield Group, who is testifying on behalf of the Property Casualty Insurers’ Association of America; Mr. Stuart Pratt, president 

of Consumer Data Industry Association; and Dr. Lawrence S. Powell, professor, University of Arkansas at Little Rock. 

I think all of you were present earlier when I laid out the rules 

of the road. Each of you will have your entire statement submitted 

in its entirety for the record, and we would ask you to summarize 

your testimony in 5 minutes or less. You will get a green light at 

4 minutes, a yellow light for the 4th minute, and then a red light 

at the end of 5 minutes, and we would ask you to wrap up when 

you see the red light as expeditiously as possible. 

With that, Mr. Bob Hunter, director of insurance, Consumer Federation of America, you are recognized for 5 minutes. 

STATEMENT OF J. ROBERT HUNTER, DIRECTOR OF 

INSURANCE, CONSUMER FEDERATION OF AMERICA 

Mr. HUNTER. Thank you, Mr. Chairman, and members of the 

subcommittee. My name is Bob Hunter, and I served as Federal Insurance Administrator under Presidents Ford and Carter. I also 

served as Texas Insurance Commissioner. 

Insurance scoring is used to determine whether a customer will 

be eligible for coverage, and the premiums that the customer will 

33 

pay. In response to a question earlier, I would say that for many 

companies, credit scoring can have a greater impact than claims 

and other key factors on a final rate of an individual. 

CFA and many organizations, civil rights and others, have called 

for a prohibition on insurance scoring because its use in insurance 

undermines core functions of the insurance system, decreasing insurance availability and affordability, undermining the critical role 

of insurance and encouraging loss prevention. It has an adverse 

disparate impact and discriminates against low-income and minority consumers. It’s based on reports that often have errors or are 

incomplete. It’s inherently unfair and penalizes consumers who are 

the victims of economic or medical or natural catastrophes. It even 

penalizes them for improper lending business decisions that we’ve 

noticed over the last few years. And it violates sound actuarial 

principles. 

The insurance industry claims a variety of benefits; but when 

you boil it all down, it basically says, ‘‘We have a correlation,’’ and 

therefore we’re more predictive with it of the likelihood of a consumer having a claim. If that were true, we would expect an increase in delinquencies in bankruptcies would be matched by an increase in insurance claims. Since 2000, bankruptcies and delinquencies have risen sharply, but auto claim frequencies have declined sharply. This suggests there is no correlation. 

Why aren’t we seeing the correlation at work over time? Insurers 

can’t tell us what it is about a credit score that is linked with risk. 

This is what Ms. Waters and others have raised. What is it linked 

to? If you ask them why a person who suffered a decline in credit 

because of Hurricane Katrina or losing a job because of outsourcing 

is a worse risk, they can’t answer. 

Unlike every insurance class before credit scoring was adopted, 

credit scoring is not based on a logical rationale confirmed later by 

a statistical analysis. A correlation alone with no thesis being 

measured means the credit score violates actuarial principles. 

The only thesis insurers have manufactured but cannot prove 

with data is that people with bad credit are irresponsible. But try 

telling that to people laid off from a job, or after a major medical 

problem, or after suffering financial difficulty from a divorce. These 

3 life events account for 87 percent of family bankruptcies. That is 

not irresponsibility; that is life events. 

If insurers call this irresponsible, they’re even more heartless 

than I thought. In fact, there’s strong evidence that insurance scoring is not a predictor of insurance claims, but rather a proxy for 

other factors that are related to claims experience, such as income 

or geographical location of the car. But it also is a proxy for race 

as well as income. 

Two independent studies by Texas and Missouri found strong relationships between race and income. The Missouri department 

said race was the strongest, when you look at the correlation between race and credit scoring. Even the recent flawed FTC report, 

as we’ve already heard, found this correlation. Hopefully, the home 

insurance study will be better because of what we’ve heard today 

that they’ll actually collect the data that they didn’t have, which 

was hugely inadequate, the auto insurance study, for reasons I’ve 

listed in my testimony. 

34 

Insurers claim that competition would be harmed and availability reduced if credit scoring is banned. This is false. I need only 

to point to California, where credit scoring is banned for use in 

auto insurance. In our recent in-depth study of auto insurance regulation, we found that State has the best system in the Nation, including the ban on credit scoring. While the insurers claim competition would be harmed by it, our data shows that California has 

the 4th most competitive market in the Nation, measured by HHI. 

Plus the assigned risk rate has dropped to only 1⁄10 of 1 percent of 

the autos insured in the State. 

This proves availability and competition are not harmed by banning the use of credit scoring. Indeed, Massachusetts, which was 

praised earlier, as becoming less State-controlled, still has prior approval and bans credit scoring. So does Maryland for home credit 

scoring. 

We applaud the sponsors of H.R. 5633 and 6062. We have concerns about the first one, H.R. 5633. The legislation’s goal of banning credit scoring if the use of consumer credit information discriminates on the basis of race is a good one, but we fear that the 

legislation will not achieve the results for a series of reasons I listed in my testimony. 

CFA believes that simple banning of credit scoring in insurance 

is necessary, and everything we’ve studied indicates it’s the right 

thing to do; therefore, we enthusiastically support Ms. Waters’ bill, 

H.R. 6062. 

[The prepared statement of Mr. Hunter can be found on page 59 

of the appendix.] 

Chairman WATT. I thank the gentleman for his testimony. Ms. 

Lisa Rice, vice president, National Fair Housing Alliance, is recognized for 5 minutes. 

STATEMENT OF LISA RICE, VICE PRESIDENT, NATIONAL FAIR 

HOUSING ALLIANCE 

Ms. RICE. Thank you, Chairman Watt, Ranking Member Miller, 

and members of the subcommittee for the opportunity to testify 

today on credit-based insurance scoring. 

The National Fair Housing Alliance (NFHA) is a consortium of 

more than 220 private nonprofit fair housing organizations and 

State and local civil rights agencies. Our mission is to eliminate all 

forms of housing discrimination and to expand equal housing opportunities. 

It is NFHA’s position that Congress should ban the use of credit 

scoring in insurance. Studies by the Missouri and Texas Departments of Insurance have found that insurance scoring discriminates against minority consumers because of the racial and economic disparities inherent in the scoring systems. 

Even though the Federal Trade Commission used data handpicked by the industry for its 2007 study, it found that credit scoring discriminates against low-income and minority consumers and 

that credit-based insurance scores ‘‘appear to have some proxy effect for three of the four coverages studied.’’ Unfortunately, instead 

of highlighting this discriminatory connection, the FTC chose to restate the arguments of the insurance industry that scores are related to responsibility and risk management. 

35 

The industry claims that there are ‘‘intrinsic underlying individual biological and psychological characteristics of risk taking in 

both financial behavior and driving.’’ This argument, however, ignores the fact that racism and discrimination have always been 

present in our society, and that discrimination is inextricably tied 

to inequality in our lending and financial markets. 

People of color do not have a risk-taking biology. African Americans and Latinos have lower insurance scores because of direct and 

indirect discrimination in the marketplace. America has a bifurcated lending system that disproportionately discriminates against 

borrowers of color. 

Countless studies and court cases have demonstrated this. My 

own organization conducted a multi-year lending testing project 

which uncovered multiple ways in which African Americans were 

denied lending opportunities, including receiving inferior basis information that their white counterparts were given, being urged, 

unlike their white counterparts, to go to a different lender, and 

being told, unlike their white counterparts, that they would not 

qualify for a loan. This happened even though both the African 

American and white consumers were equally qualified. 

Parenthetically, NFHA has been involved in conducting hundreds, probably thousands of tests of insurance companies, and we 

have found similar biases there too, based on race. 

Our bifurcated lending system has also helped to lead to the current foreclosure crisis. As we all know, African Americans and 

Latinos were disproportionately targeted for subprime loans and 

unsustainable mortgages, even when they qualified for better rates. 

Thus, borrowers who entered the mortgage cycle with sound credit 

are now facing plummeting credit scores. 

It is wholly unfair to further burden borrowers who were unfairly 

targeted by unscrupulous lenders with higher insurance premiums. 

These borrowers will not suddenly turn into poor drivers or lax 

homeowners simply because their credit scores have decreased. 

Banning credit-based insurance scores is a civil rights issue, which 

is why NFHA supports H.R. 6062. 

We also appreciate the efforts regarding H.R. 5633, but are concerned that the bill lacks an objective standard for identifying racial discrimination, gives broad discretion to the FTC, and has no 

private right of action. Most importantly, H.R. 5633 could serve to 

legitimize insurers’ use of credit-based insurance scoring in general. 

A recent study demonstrates that if you crash your car, you can 

blame the stars. The study found, looking at records of 100,000 

drivers that there is a statistically significant correlation between 

Zodiac signs and car accidents. Based on the study’s findings, 

Libras, Aquarians, and Aries are the worst drivers. Who knew? 

The National Fair Housing Administration was involved in litigation against a major insurance company that utilized a credit scoring model. An analysis of the model, which we could do because of 

discovery under a protective order, found clear disproportionate impact on African Americans and the price they paid for insurance, 

which could not be accounted for by differences in the risk they 

posed. In other words, African Americans paid a higher rate than 

was commensurate for their level of risk. 

36 

We urge you to ban the use of consumer credit information for 

insurance, and thank you again for the opportunity and the invitation to speak to you today. 

[The prepared statement of Ms. Rice can be found on page 233 

of the appendix.] 

Chairman WATT. Thank you for your testimony. 

Mr. Poe, chief operating officer of CURE Insurance. 

STATEMENT OF ERIC POE, CHIEF OPERATING OFFICER, CURE 

AUTOMOBILE INSURANCE 

Mr. POE. Thank you very much, Mr. Chairman, and members of 

the subcommittee for inviting me today to talk about this proposed 

bill. As you said earlier, I am the chief operating officer of CURE 

Auto Insurance. We are a regional insurance carrier based out of 

Princeton, New Jersey. We are licensed to write in the State of 

Pennsylvania, as well as the State of New Jersey. 

I would like to start out by giving some background on our interest in this particular issue. Prior to 2003, in the State of New Jersey, insurance carriers were not approved for the use of credit 

scores, education, occupation, as well as homeownership status as 

factors in underwriting. 

However, in 2003, the New Jersey government decided that they 

wanted to attract more market players, new national carriers into 

the marketplace. And it was at that time they started permitting 

credit scores, education, occupation, and homeownership. As an organization that writes private passenger automobile insurance, it 

was at that time that we had to study and analyze these underwriting methods to determine their validity. 

After significant review, CURE Auto Insurance determined that 

while these rating and underwriting variables do correlate to loss 

ratios, they merely serve as statistical proxies for income, which is 

why CURE Auto Insurance does not employ any of those factors. 

However, we believe that we will soon be compelled to for competitive measures if this is not stopped. 

To start, I would like to explain some of the conclusions that we 

found when reading the reports that were issued dealing with credit scores. It appears evident that the auto insurance industry uses 

loss ratio models as justification for using credit scores, education, 

as well as occupation. Now showing statistical correlation to these 

characteristic traits to loss ratios, the entire industry has been able 

to validate using credit scores and all these other factors. 

However, I think it is important for everybody to understand 

what is a loss ratio. By definition, a loss ratio is the incurred losses 

and loss adjustment expenses divided by net earned premium. In 

layperson’s terms, it’s a measure of profitability which we call rate 

adequacy. 

Surprisingly, what our examination yielded was that the studies 

dealing with credit scores, education as well as occupation, have 

made an inappropriate conclusion—that simply because you show 

a correlation to loss ratios, it means that the variable that you are 

testing automatically is a predictor of risk. 

However, it’s important to understand that there’s an infinite 

number of characteristic traits that you can draw correlations to 

loss ratios, but they would all be invalid if you can explain a more 

37 

valid characteristic trait that’s imbedded in that variable. The best 

example that was given before was life insurance and mortality tables with African Americans in the past, with African Americans 

having shorter life spans. Life insurance companies still aren’t able 

to use it. 

My example would be that African Americans have shorter mortality tables not because they’re black; it’s because socioeconomics 

are involved with them having lower mortality tables. Because they 

are in lower-income neighborhoods; it is more likely there are 

homicides; it is more likely there is crime; it is more likely that because they are less educated on average, they are going to eat 

worse foods, they are going to have diabetes, and they are going 

to have high blood pressure. Those are the reasons that are the 

driving factor of why mortality tables for life insurance may be 

shorter for African Americans than whites; it’s not because of the 

color of their skin. 

Similar to loss ratios that we have here with credit scores. In an 

example that I just gave, I would say that with credit scores, what 

we found is that they are very good valid predictors of income, but 

not necessarily good valid predictors of risk in terms of anything 

else. 

Now our fellow members of our industry would like to disguise 

the public policymakers as regulators, as well that these rating 

variables of credit scores possess some unexplainable commonality 

of why they correlate to risk, and therefore are valid predictors of 

risk. But this is in light of the fact that all of these variables that 

we’re talking about here have an obvious correlation to income, and 

it is income that is correlated to loss ratio or profitability for our 

industry. 

Now speaking about credit scores specifically: To clarify first 

credit-based insurance scores, when we examined them, the differences between an insurance score and a credit score is at least 

we found to be negligible. Asking how many oil accounts and gas 

cards somebody has really didn’t make a big difference with what 

you would yield in terms of a credit score versus an insurance 

score. 

But the reason why we concluded that credit scores are correlated to income is because if you look at the FICO credit scoring 

model and you look at the models in which the companies that 

offer credit scores to us, you would notice that although 35 percent 

of your credit score is determined based upon your prior history of 

making on-time payments, number two in that list is 30 percent 

going to credit utilization. 

Now due to the fact that credit lines by lenders are directly calculated, based upon a borrower’s income, this is why we believe the 

credit scoring model more significantly based our belief on the conclusion that this was a strong predictor of somebody’s income. 

The best example that I can give is really, looking at somebody 

who does not make a high income, has a $1,000 credit line granted; 

somebody who makes a lot of money has a $20,000 credit line 

granted, if they charge $800 in groceries, there’s an 80 percent utilization factor for those people who have low incomes because they 

are using 80 percent of their credit line. 

38 

But I think the reason why the industry really wants to adopt 

this practice of credit scores is for three reasons. Number one, the 

industry itself wants to attract high-income drivers for three reasons: Number one, we produce higher revenue streams for people; 

number two, the insurance industry data-mines for higher-income 

individuals that yield a lot of money; and number three, richer people can absorb more of their claims, which was spoken to earlier. 

Finally, in summary, I just think that the subcommittee needs 

to be more aware of the fact that the bigger problem in our industry is the use of education and occupation as underwriting variables in our industry. What companies are doing, specifically 

GEICO, is they are basing whether or not you have a 4-year college 

degree and whether or not you work in a traditionally high-income 

earning job, as the basis of putting you in the most expensive insurance company that the affiliate has, and they don’t tell them. 

So, thank you very much. 

[The prepared statement of Mr. Poe can be found on page 181 of 

the appendix.] 

Chairman WATT. Thank you for your testimony. 

Mr. Neeson, senior executive, personal lines products, Westfield 

Group, you are recognized for 5 minutes. 

STATEMENT OF CHARLES NEESON, SENIOR EXECUTIVE, PERSONAL LINES PRODUCTS, WESTFIELD GROUP, ON BEHALF 

OF PROPERTY CASUALTY INSURERS ASSOCIATION OF 

AMERICA 

Mr. NEESON. Chairman Watt and members of the subcommittee, 

thank you for the opportunity to comment on H.R. 5633 and H.R. 

6062, legislation that seeks to prohibit the use of information on 

credit reports for issuing and setting premiums for motor vehicle 

and property insurance. My name is Charles Neeson, and I appear 

before you today as a senior executive with Westfield Insurance, 

and as a representative for the Property Casualty Insurers’ Association of America, a national trade insurance association, of which 

Westfield is a member. 

I am also a member of the American Academy of Actuaries and 

an associate of the Casualty Actuarial Society. An insurance company’s ability to more accurately predict losses is a critical component of property underwriting risks. Our industry is united in our 

concern over the negative impacts that restricting the use of creditbased insurance scores will have on American consumers. 

When insurers are able to properly underwrite risks, consumers 

benefit with lower rates and more choices. Because credit-based insurance scoring is an objective and accurate method for assessing 

the likelihood of insurance loss, we strongly oppose the passage of 

H.R. 5633 and H.R. 6062. 

Insurance is an incredibly competitive business, and one way for 

an insurance company such as Westfield to distinguish itself from 

its competitors is to develop better ways of gauging risk to more 

accurately price an insurance policy. Westfield Insurance began 

using insurance scores in 2000 to improve the pricing of our automobile and homeowners’ insurance products. 

In analyzing the relationship between credit information and our 

loss data, we found a strong correlation. Used in conjunction with 

39 

more traditional rating factors such as vehicle age, performance, 

gender, territory, and driver age, credit-based insurance scoring allowed Westfield to more accurately price our products and improve 

our competitive position. 

Mr. Chairman, today approximately 75 percent of our auto and 

home package customers pay less because of insurance scores, 

while only 8 percent pay more. Outside of Westfield’s own experience with credit-based insurance scoring, an annual survey published by the Arkansas insurance department shows that insurance 

scores either benefit or have no effect on the vast majority of consumers in Arkansas. 

The latest survey shows that 90.2 percent of automobile insurance policyholders, and 90.8 percent of homeowners’ insurance policyholders either received a discount or were otherwise unaffected 

by the use of credit-based insurance scores. 

In July 2007, the Federal Trade Commission issued a report to 

Congress on insurers’ use of credit-based insurance scores. In that 

report, the FTC concluded that insurance companies which use 

credit-based insurance scores are more likely to price automobile 

insurance more closely to the risk of loss that the consumer poses. 

This results, on average, in higher-risk customers paying higher 

premiums and lower-risk customers paying lower premiums. 

The use of credit-based insurance scoring is subject to extensive 

regulation by the States. The National Conference of Insurance 

Legislators (NCOIL) promulgated model legislation regarding its 

use. And most States have either enacted that model or have 

adopted restrictions similar to those contained in the model. 

Insurers that consider credit information in their underwriting 

and pricing do so for only one reason: Insurance scoring allows 

them to rate and price business with a greater degree of accuracy 

and certainty. Sound underwriting and rating, in turn, allows insurers to write more business, which is a direct benefit to consumers. Without the ability to consider credit, many insurers would 

be less aggressive in their marketing, and far more cautious in accepting new business. 

Every serious and reputable actuarial study on the issue has 

reached the same conclusion: There is a very high correlation between insurance scores and the likelihood of filing insurance 

claims. And while it is a common criticism of insurance scoring 

that the exact reason for that correlation is unknown, there are 

also numerous other rating factors, of which causality is also unknown. 

For example, even though there is no definitive explanation as 

to why married individuals represent less risk than single individuals, marital status is a widely accepted and widely utilized rating 

variable. Credit-based insurance scoring is an effective tool for insurers, and a fair one to consumers. To protect competition and 

consumer choice, it is imperative that insurers be permitted to fully 

price risks, using non-discriminatory and statistically valid tools, 

such as credit-based insurance scores. 

Thank you very much for allowing me to come and testify before 

you today, and I would be happy to address any questions that you 

may have on this subject. 

40 

[The prepared statement of Mr. Neeson can be found on page 168 

of the appendix.] 

Chairman WATT. Thank you, Mr. Neeson, for your testimony. 

Mr. Pratt, president, Consumer Data Industry Association, you 

are recognized for 5 minutes. 

STATEMENT OF STUART PRATT, PRESIDENT, CONSUMER 

DATA INDUSTRY ASSOCIATION 

Mr. PRATT. Chairman Watt, Ranking Member Miller, and members of the subcommittee, thank you for the opportunity to appear 

before you today. We commend you for holding this hearing, and 

my comments will focus on just a few key points drawn from our 

written testimony. 

First, the States have fulfilled their mandate to protect consumers through careful deliberations and extensive oversight of the 

use of credit histories and scores for insurance underwriting. 

Second, our members management of the quality of data in their 

databases is a proven success story. 

And third, the market is addressing the question of consumers 

with a thin credit report or no credit report at all. 

In 1945, Congress enacted the McCarran-Ferguson Act, and in 

doing so left the regulation of the business of insurance to the 

States. And perhaps the question before us today is how have they 

done with regard to the use of credit histories and credit historybased insurance scores as a factor in underwriting for personal 

lines of insurance? I think the answer is clear and positive for all 

of us as consumers. 

Virtually all States permit and regulate the use of credit histories and scores. These decisions have been made with an eye towards fairness. Studies by regulators have found that the use of 

credit histories is fair and predictive. 

In 2003, in testimony offered on behalf of the NAIC before the 

full House Financial Services Committee, with regard to a report 

from the American Academy of Actuaries, they stated the following: 

‘‘The Academy members have reviewed studies and believe that 

credit histories can be used effectively to differentiate between 

groups of policyholders. Therefore, they believe credit scoring is an 

effective tool in underwriting and rating personal lines of insurance.’’ 

There is no dearth of quality oversight regarding the use of credit histories and scores. However, some suggest that credit reports 

are not accurate and thus shouldn’t be used for underwriting. We 

could not disagree more strongly. Never before have we had so 

much definitive data with regard to the accuracy of credit reports. 

In 2004, the Federal Reserve studied 300,000 credit reports and 

they found the following to be true: ‘‘Available evidence indicates 

that the information that credit reporting agencies maintain on 

credit-related experiences of consumers and credit history scoring 

models derived from these experiences have substantially improved 

the overall quality of credit decisions while reducing costs of such 

decision-making.’’ 

Consumer experiences in reviewing their credit report disclosures 

validate the conclusions of the Federal Reserve. Out of 52 million 

free credit report disclosures provided, only 1.98 percent of these 

41 

reviews resulted in a dispute where data was deleted. Often-cited 

studies with regard to accuracy have been rejected by the Government Accountability Office, and in their 2003 testimony, they state, 

‘‘We cannot determine the frequency of errors in credit reports 

based on the Consumer Federation of America, U.S. PIRG, and 

Consumer’s Union studies.’’ Two of the studies did not use a statistically representative methodology because they examined only the 

credit files of their employees, who verified the accuracy of the information, and it was not clear if the sampling methodology in the 

third study was statistically projectable. 

Our members data management is a success story, and we can 

all have full confidence in the data upon which decisions are based. 

Some suggest that credit history should not be used because 

some consumers do not have a credit report which can be scored 

or don’t have a credit report at all. State laws address this by prohibiting insurers from denying, canceling, or non-renewing a policy 

based solely on credit information. And we agree with this position. 

The good news, and the real good news for consumers is that 

CDIA’s members are leading the effort to expand the types of payment data, which can be used for underwriting. Several of our 

members have already brought to market public record data products, which allow a user to consider assets where there’s an absence of credit payment history. 

Some CDIA members already include utility and telecommunications payment data in traditional credit-reporting databases. 

Other members of the CDIA are aggregating checking account consumer payment data, where such data is reported directly by the 

consumer’s bank to the database, and some CDIA members provide 

services where they validate payment data provided by the consumer. 

The Political and Economic Research Council’s empirical study of 

8 million credit reports found the following to be true, including alternative data such as those that I’ve discussed, are especially beneficial for members of ethnic communities and other borrower 

groups. Hispanics saw a 22 percent increase in acceptance rates. 

The rate of increase was 21 percent for blacks, 14 percent for those 

age 25 or younger, and 21 percent for those who earned $20,000 

or less annually. 

In conclusion, we believe the right balance has been struck with 

regard to the Federal and State laws and that no new law is necessary. The States have fulfilled the role expected of them. 

Our members’ data contributes to fair treatment. A May 18, 

2008, Washington Post story reported that a study of an entire 

year’s FHA applications turned up the additional fact that FHA 

lower-income borrowers typically had higher scores than those with 

larger incomes. This is powerful new data that should give us confidence in the core value of credit histories. Our members’ data is 

blind to race and ethnicity. Our members’ data helps consumers. 

Consumers want to be recognized for their years of care and responsible actions, regardless of their race or ethnicity. 

I thank you, Mr. Chairman, for your time, and I look forward to 

answering your questions. 

[The prepared statement of Mr. Pratt can be found on page 214 

of the appendix.] 

42 

Chairman WATT. Thank you, Mr. Pratt, for your testimony. 

Dr. Powell, professor, University of Arkansas at Little Rock, you 

are recognized for 5 minutes. 

STATEMENT OF LAWRENCE S. POWELL, PH.D., PROFESSOR, 

UNIVERSITY OF ARKANSAS AT LITTLE ROCK 

Mr. POWELL. Thank you, Chairman Watt, Ranking Member Miller, and members of the subcommittee. I’m honored to be invited 

to share information with you about insurance scoring. I appear on 

behalf of the Independent Institute as a research fellow. I have a 

Ph.D. in insurance, and I hold the Whitbeck-Beyer Chair of Insurance and Financial Services at the University of Arkansas at Little 

Rock. 

This is an important topic, given the financial stability the insurance industry provides consumers. And accurate pricing is a cornerstone of the insurance mechanism. 

My perspective is that of an educator and a researcher. And I 

think it’s instructive to begin with a big-picture view of insurance 

pricing. Insurance companies face an unusual challenge; they must 

set prices for the products they sell before they know all of the 

costs. To meet this challenge, they employ complex pricing methods 

developed by actuaries, using economic and statistical techniques. 

It should then come as no surprise that some aspects of actuarial 

science and insurance pricing are puzzling to people who have not 

developed substantial expertise in this field. Insurance scoring is 

an example of a beneficial innovation in insurance pricing that 

causes some people concern. 

It’s my opinion that thorough consideration of insurance scoring 

should lead one to conclude it is not only appropriate for insurers, 

but that using it creates value and promotes fairness in society. 

There are many compelling arguments in favor of these conclusions. 

Given the time limit in this forum, I would like to share with you 

a fundamental reason why insurance scoring is a good practice, and 

a fundamental observation suggesting that any potential misuse of 

insurance scoring cannot persist in the market. 

The first fundamental point is that insurance scoring is an extremely powerful and accurate predictor of insured losses. Evidence 

of this is conclusive. Studies by the Texas Department of Insurance, the Federal Trade Commission, and several others showed 

that the subset of drivers with low insurance credit scores submit 

more claims and cause more total loss payments than those with 

high credit scores. 

In fact, it has been shown that drivers with two or more prior 

losses, but good credit, are less likely to have a loss in the current 

year than drivers with clean driving records and bad credit. There 

are many benefits to using accurate predictors of loss in insurance 

pricing models. 

For use of innovative, accurate predictors of loss, such as insurance scores, availability of insurance has improved, competition in 

insurance markets has increased, and costs have decreased for 

many insurance consumers. 

Many experts believe the coinciding advent of insurance scoring 

and the decrease in residual market populations for automobile inVerDate Aug 31 2005 17:22 Aug 28, 2008 Jkt 043699 PO 00000 Frm 00050 Fmt 6633 Sfmt 6633 K:\DOCS\43699.TXT TERRIE
43 

surance are directly linked. By introducing new information to the 

insurance pricing models, insurers were able to find acceptable risk 

they were previously unable to identify. 

Accurate loss models also benefit society by producing fair outcomes in which insurance premiums are commensurate with risk 

of loss. When insurers cannot use accurate predictors of loss, lowrisk drivers must pay higher premiums to subsidize high-risk drivers. In addition to a general sense of fairness, accurate loss predictors also create incentives for high-risk drivers to take more care 

in driving. 

Effective competition is a fundamental characteristic observed in 

U.S. insurance markets. Competition prevents insurers from charging excessive or unfair premiums. In 2005, the NAIC data show an 

average of 157 insurance companies underwriting the private passenger automobile cover in each State. It’s therefore reasonable to 

believe that an insurer cannot systemically overcharge a group of 

drivers, because then one of the other 156 existing companies, or 

perhaps a new company, has an opportunity to cover that group of 

drivers at an equilibrium price. 

But we’re not here because everyone likes insurance scoring. I’ve 

heard critics describe potential or anecdotal unfair outcomes associated with insurance scoring. And I do not dispute the fact that 

some consumers have encountered individual rating scenarios that 

seem to lack intuition. 

For example, I know of a consumer in Arkansas who received an 

increase in his premium because his wife canceled a credit card 

they were not using. However, he called a few competing insurance 

companies and found one that offered him the same coverage at a 

significant discount from what he was paying before the change in 

his credit. And this is an example of competitive markets reaching 

an optimal outcome. 

While competitive markets are very effective at making goods 

and services consumers want available to them, critics have voiced 

concerns that when a drop in credit is unrelated to insurance risk, 

some individuals could be mistreated by insurance scoring. In response to such concerns, almost every State has regulations in 

place to recognize the benefits of scoring, while limiting its use in 

these certain scenarios. 

I think it’s worth noting that many insurers offered the same 

protections as these regulations require before the laws were enacted. And this is another example of competitive markets creating 

an optimal outcome. 

Thank you again for this opportunity to share with you today. I 

look forward to addressing your questions. 

[The prepared statement of Dr. Powell can be found on page 193 

of the appendix.] 

Chairman WATT. Thank you, Dr. Powell, and I thank all of the 

witnesses for their testimony. 

I will recognize myself for 5 minutes for questions. Not for the 

purpose of discounting your testimony, but for the purpose of making sure that we understand that there is some vested interest that 

the members of your organization have in this, the members of 

your organization provide the credit scoring that insurance companies rely on? Reports? 

44 

Mr. PRATT. To clarify, Mr. Chairman, our members do two 

things. They provide the underlying credit data, the credit history 

that is the basis for the score, and in some cases they may be the 

score provider; in some cases there may be a third-party company 

that is providing the score which is used by the insurer. 

Chairman WATT. Okay. Would you have access to information 

about what part of your members’ business is related to providing 

insurance credit scoring as opposed to other information? 

Mr. PRATT. I can’t answer the question here at the table. 

Chairman WATT. I understand that. But would you have access 

to the information if we ask you to obtain that? 

Mr. PRATT. I don’t know, because it might be market-based, and 

publicly traded companies sometimes make different decisions 

about what they want to make public and what they don’t, Mr. 

Chairman. 

Chairman WATT. Okay. But I suppose it would vary from company to company? 

Mr. PRATT. I have no doubt that different companies would claim 

different market shares. 

Chairman WATT. Mr. Neeson, your company did not use creditbased insurance scores until 2000, is that correct? 

Mr. NEESON. That’s correct, sir. 

Chairman WATT. And what were the factors that you were using 

prior to your use of credit-based insurance scoring? 

Mr. NEESON. The industry is very competitive, and— 

Chairman WATT. I’m talking about your company. 

Mr. NEESON. Well, I’ll just say that the sort of things that we 

used in the past would be age of driver, marital status, sex of driver, use of car, location of the risk, the limit of liability, the value 

of the car, the age of the car. Things like that. Prior accidents— 

I don’t know if— 

Chairman WATT. Those kinds of things that people would normally associate with having some connection to risk when you’re 

driving? 

Mr. NEESON. I would say it would also include things that we 

talked about earlier, like good student driver discounts. 

Chairman WATT. Okay. What percentage, how much weight does 

your company give to credit scoring versus those other more traditional underwriting factors? 

Mr. NEESON. We don’t deal in weights in the pricing of a vehicle, 

but I do know about the kinds of pricing factors— 

Chairman WATT. Well, if I walked into your office— 

Mr. NEESON. Okay, the weight— 

Chairman WATT. You’re saying you wouldn’t—I mean you have 

to have a weight. 

Mr. NEESON. Yes. For example, I don’t know if you’ve had a teenage driver before, but a teenage driver added to the policy would 

increase the rates substantially, 3 times, and so forth, whereas the 

value of having a— 

Chairman WATT. Well, would the weight of a credit report be less 

for a teenage driver? 

Mr. NEESON. Far less than that. A 16-year-old driver versus 

someone with— 

Chairman WATT. Mr. Neeson, please listen to my question. 

45 

Mr. NEESON. Sure. 

Chairman WATT. What percentage weight do you give to credit 

scoring in determining rates? I appreciate the information about 

being a teenage driver, but this hearing is about credit scoring, and 

so it’s that particular factor that I’m trying to find out what weight 

you give to it. 

Mr. NEESON. I don’t have the exact figures, but I would say that 

in automobile insurance, that would range from about a 15 to 20 

percent discount to a surcharge of 50 percent, something in that 

neighborhood. 

Chairman WATT. I am not talking about the discount; I am talking about the underwriting decision. 

Mr. NEESON. Westfield does not use the insurance score as any 

part of its weighting or whatever, for underwriting. We only use it 

for pricing, not for underwriting. 

Chairman WATT. Oh, okay. Yes. 

Dr. Powell, you have talked about the predictive value of insurance-based scores for risk. Let me be clear about whether you are 

talking about risk or claims. Which one are you talking about when 

you say risk? 

Mr. POWELL. The risk of claims. I don’t see where there’s a difference if we’re talking about an insurance mechanism. 

Chairman WATT. Well, there is a difference if somebody has an 

accident and elects not to file a claim. 

Mr. POWELL. Not in the amount of money that is paid out by the 

insurance company. 

Chairman WATT. Okay. So you are talking about the actual 

amount of claims that people, pay is what you are talking about. 

Mr. POWELL. Yes. 

Chairman WATT. Okay. That’s fine. 

My time has expired. I will recognize the ranking member for 5 

minutes. 

Mr. MILLER. Thank you. We’ve talked about a lot of things. 

We’ve talked about underwriting standards, pricing, loss ratios, 

profitability, risk have all been used in conversations, premiums 

based on higher risk, lower risk. Insurance companies are not nonprofit organizations; they are a for-profit industry. 

And in order to set premiums, you have to consider risk and the 

probability of a loss or how many losses, and the factors associated 

with it. 

And I know, Mr. Poe, you testified that CURE does not use credit 

scores because of your belief that they are proxies for incomes. And 

that’s really completely different than most of the witnesses we 

have had today; their opinion has really not said that; they have 

not raised that issue. And yet FHA has now determined they’re 

going to use a new policy; they’re going to use credit scores for riskbased pricing. And in fact, the report they just completed, they 

found that lower-income FHA borrowers have average FICO scores 

that are higher than for borrowers with larger incomes. 

I know that’s kind of shocking to people, but that’s how FHA is 

going to do it in the future. Do you think that’s a reasonable and 

appropriate thing for FHA to do? 

Mr. POE. You know, I haven’t seen the study, but I don’t know, 

so I can’t really comment on that. 

46 

Mr. MILLER. Okay. Now the study that was generated earlier by 

the FTC and the Federal Reserve basically said that for whatever 

reason, credit scores is a predictor of risk loss. I mean, that is what 

their report came out and said. 

Mr. POE. Correct. 

Mr. MILLER. Okay. Thank you. Your argument was different, 

then. I just wanted to get an opinion. 

Okay. Mr. Neeson, you were testifying on behalf of PCI, who adamantly opposes H.R. 5633 and H.R. 6062 because these bills would 

increase prices and reduce the availability for most consumers. 

What are the facts? And are most of the consumers helped or hurt 

by credit score usage, in your opinion? 

Mr. NEESON. From our own company experience, the vast majority of our customers are benefitting from the use of insurance 

scores. In my written testimony about our auto home package policyholders, three-quarters of those received discounts and another 

15 percent or so are neutral. 

In the Arkansas surveys that are run annually, comparable numbers of people benefiting, and neutral persist. In my testimony earlier it was 90.3 and 8 percent. Amazing percentage. 

Mr. MILLER. Can you take a credit score on an individual, is 

there any way you can glean from that gender or race from that 

credit score? 

Mr. NEESON. No. 

Mr. MILLER. Okay. So it’s pretty much a neutral score. You 

wouldn’t have an idea if it was male, female, black, white— 

Mr. NEESON. In the reverse, all insurance companies really have 

no idea of the race of their customers. Westfield would have no idea 

of that. And what we do know is that the vast majority of our customers do benefit from insurance scores. By eliminating that I also 

know that there would be a vast number of people then that would 

be severely harmed, and those would include groups such as senior 

citizens on a fixed income, you know, lower-income people who are 

working hard to pay their bills, to pay their gas bills, to pay their 

electric, and food costs. In these economic times, it would be very 

difficult for so many people to have higher payments such as that. 

Mr. MILLER. And if insurers are unable to price for risk, for example, because credit score usage is banned, does this increase 

overall costs for consumers, in your opinion, as the Federal Reserve 

Board found, because you have to charge higher premiums for risk 

uncertainty? 

Mr. NEESON. Yes. In my opinion, that would be the case. It 

would be no different. I’m sure that all of you are aware of the difference between Treasury bonds and junk bonds; the risk of each 

causes a higher rate to be charged for the risks with higher risk 

of loss and insurance. 

Mr. MILLER. Mr. Pratt, you found that the elderly have better 

scores on average? Based on reports we have seen, the Federal Reserve said that seniors have better credit scores on average. And 

Mr. McCarty was on the panel before, and he testified to the opposite. But who, in your opinion, would you believe to be correct in 

that? 

Mr. PRATT. The preponderance of the evidence supports the conclusion that seniors more often have higher credit scores. By the 

47 

way, the reason for that is in part because they have been in the 

marketplace longer, so as they have built a history over time and 

demonstrated—you can have a consumer with a 1-year credit history and a consumer with a 50-year credit history. And even if 

their credit reports looked exactly the same, there would be some 

difference in the score, because one consumer is demonstrating 

good hard work and good behavior for a year, and the other consumer is demonstrating it for 50 years. 

Mr. MILLER. Okay. So banning it could particularly harm seniors? 

Mr. PRATT. That’s possible. That’s a possible outcome. 

Mr. MILLER. I’m in the situation you’re in; I’m out of time, Mr. 

Chairman, so I yield back. Thank you. 

Chairman WATT. Could I ask unanimous consent for 30 additional seconds and ask you to yield just on this last point, because 

I’m trying to square Mr. Pratt’s testimony and Mr. Neeson’s testimony. 

Mr. MILLER. Oh, sure. 

Chairman WATT. Seniors have higher, better credit scores, yet 

Mr. Neeson said they have—one of the traditional factors that they 

were taking into account was age. That suggests to me that seniors 

may have higher incidents of accidents. Is that correct? Or am I 

wrong about that? Mr. Neeson? 

Mr. NEESON. Seniors do have better insurance scores from what 

at least I’ve heard. 

Chairman WATT. I got that from Mr. Pratt. I’m talking about 

their driving record. 

Mr. NEESON. I’ve seen where people 60 years old and so forth 

have better driving, and as they get to be 80 or 90 years old get 

worse. And that’s what I’ve seen. 

Chairman WATT. So you would factor that in— 

Mr. NEESON. However, the improved insurance score, these work 

independently. It’s like your value of your car, and the location that 

you— 

Chairman WATT. I appreciate it. I understand they work independently, but they work counterproductively, it seems to me. If 

you are taking credit scores into account, and seniors have better 

credit scores, then you must be saying they have less accidents, or 

they at least, according to Dr. Powell, submit less claims for this 

to make sense. Otherwise—but I yield back to the— 

Mr. MILLER. Can I have 30— 

Chairman WATT. Sure. 

Mr. MILLER. But I heard the testimony earlier that underwriting 

standards are different, and that would be the loss ratio, accidents 

and stuff that they tend to have. And then this would be used after 

that. Is that not correct? 

Mr. NEESON. That’s correct. Different insurance companies do— 

Chairman WATT. In his company. 

Mr. MILLER. Yes. 

Mr. PRATT. Could I just add one additional comment, Mr. Chairman? 

Chairman WATT. Yes, sir. 

Mr. PRATT. It’s a personal experience. When I was 24 years old 

in Texas— 

48 

Chairman WATT. Does this have something to do with aging? 

Mr. PRATT. It does. It has something to do with aging. 

Chairman WATT. All right. 

Mr. PRATT. And I needed insurance and I needed a new car, so 

I went out and bought my new car, and I got my insurance policy. 

And because I was 24 years old, my insurance premium per month 

was higher than my car payment per month. 

Chairman WATT. I’m sure that has something to do with what 

we were just talking about. 

Mr. PRATT. When I was 25, my insurance premium— 

Chairman WATT. You’re going to have to make this point a little 

bit quicker, because my time— 

Mr. PRATT. Well, the bottom line is I think the age issue works 

on both ends. In other words, had a credit score been used, it might 

have been a counterbalance and actually caused the insurance company to be able to rate me differently and to allow me to pay a lesser price, and not to have used age as the preponderant factor in 

determining my premium. I think it’s just worth the consideration 

that it works on both ends of the scale, Mr. Chairman. 

Chairman WATT. I hope somebody understands the value of that. 

Because I don’t. I’m sorry. 

Mr. HUNTER. Mr. Chairman, could I add something? 

Chairman WATT. No. All of our time expired 5 minutes ago. I am 

sorry, but I don’t want to penalize the other members of the committee. 

I recognize the gentlelady from California for 5 minutes. 

Ms. WATERS. Ms. Rice, with the National Fair Housing Alliance, 

will you please explain the disparate impact on racial minorities 

from the use of credit-based insurance scores? 

Ms. RICE. Well, as is identified in our testimony, discrimination 

in the marketplace cannot be excised from the credit repository 

data. And there are so many instances of discrimination in our 

marketplace where African Americans and Latinos are disparately 

impacted or disproportionately negatively impacted, such as the 

current foreclosure crisis that we are experiencing. If you compare 

the rate of foreclosures across various demographic designations, 

you’ll see that African Americans and Latinos are harder hit by 

that. 

Now they’re harder hit not because they posed a greater risk, but 

they’re harder hit because they were disproportionately marketed 

loan products that were non-performing and that were 

unsustainable. It had nothing to do with their individual level of 

risk; it had everything to do with discrimination in the marketplace. And we feel that using credit information, particularly at 

this juncture, is going to do more harm than good, and we’re going 

to see even greater disparities. 

As you’ve heard other people say before, African Americans and 

Latinos score anywhere between 10 points and 35 points lower 

than their white counterparts. And again, we argue that is not because they are more intrinsically or inherently risky, but due to 

discrimination in the marketplace. 

Ms. WATERS. Thank you. Mr. Hunter, do you agree with that? 

49 

Mr. HUNTER. Yes. I believe that’s correct, and I do believe that’s 

why people are paying more if they’re lower income and if they’re 

minorities for insurance. 

Ms. WATERS. Mr. Poe, do you agree with that? 

Mr. POE. Yes, I do. 

Ms. WATERS. Mr. Neeson, do you understand that? 

Mr. NEESON. His answer? 

Ms. WATERS. No. I have been talking with the three witnesses 

who preceded you about the disparity in pricing and how it impacts 

minorities. And I wanted an explanation so that everybody could 

hear it, to see if you understand it or you agree with it or disagree. 

Mr. NEESON. I know that insurance scoring does work within 

races and nationalities. That was based on the FTC study. It 

shows— 

Ms. WATERS. I’m sorry, what did you just say? It works within? 

What does that mean? 

Mr. NEESON. One of the charts towards the back of the survey 

shows that those individuals with better insurance scores by race 

had lower loss costs. And one of the things that we saw—and 

again, we are not privy to any racial information of the company; 

but people that live in perhaps urban areas or whatever may have 

prior claims. And what I have seen is that the— 

Ms. WATERS. My question to the first person was to explain the 

disparate impact on racial minorities from the use of credit-based 

insurance scores. She did an explanation. My question to you was: 

Did you understand that, what she said? 

Mr. NEESON. I did understand that. 

Ms. WATERS. Do you agree with that? 

Mr. NEESON. No, I don’t. 

Ms. WATERS. Thank you. 

Let me go on to Mr. Pratt. Did you hear what was explained by 

Ms. Rice? 

Mr. PRATT. I did. 

Ms. WATERS. Do you agree with that? 

Mr. PRATT. I do not. 

Ms. WATERS. I beg your pardon? 

Mr. PRATT. I do not. 

Ms. WATERS. You do not. 

Okay. And lastly, Mr. Powell, did you hear the explanation about 

the disparate impact on racial minorities from the use of creditbased insurance scores? Do you agree with that? 

Mr. POWELL. I heard it; I disagree with the conclusion. 

Ms. WATERS. Okay. 

Mr. Chairman, your bill—if I may—I know this is a little bit unusual—your bill was introduced because of the disparity. And you 

said that you had some documentation for it. Would you repeat 

that documentation? 

Chairman WATT. My documentation is based on the FTC’s report 

that credit scores in this case are a proxy for race. And I think— 

well, that’s what we based it on, yes. 

Ms. WATERS. I see. Mr. Neeson, have you seen the report? 

Mr. NEESON. Yes, I have. 

Ms. WATERS. And you think that the FTC is wrong? 

Mr. NEESON. I saw that it showed little proxy effect. 

50 

Ms. WATERS. I can’t hear you. 

Mr. NEESON. I heard that it said little proxy effect. 

Ms. WATERS. What does that mean? 

Mr. NEESON. Negligible. 

Ms. WATERS. What percentage? How much? How little? 

Mr. NEESON. I don’t know. 

Ms. WATERS. Mr. Pratt, have you seen the report or read the report? 

Mr. PRATT. I have. 

Ms. WATERS. Do you think it’s wrong? Do you disagree with that? 

Mr. PRATT. I think the report shows that with many different underwriting factors, if you pull it out on its own and you don’t consider it in the context of the other factors used in the decision, you 

might find some kind of proxy effect; but I think the key point here 

is that it was a negligible or minimal proxy effect. 

Ms. WATERS. Not enough to be concerned about? 

Mr. PRATT. Well, I think the insurance industry, and I suspect 

all industries, are always concerned to make sure there is not a 

sizeable proxy effect. Nobody wants that in the real market. 

Ms. WATERS. But if it is a proxy effect, it should be corrected. Is 

that correct? 

Mr. PRATT. I think that if—I don’t believe that the credit scoring 

system or the credit reporting system we have today is an enabler 

of the kind of proxy that I think we’re talking about here. 

Ms. WATERS. So the FTC report was wrong? 

Mr. PRATT. The FTC report suggests minimal proxy effects. You 

might get that with education. You might find that with geography. 

You might find that with other factors. And I think that is what 

is so key in this discussion is that you can hold out any individual 

factor and potentially find some effect that might speak to race or 

might speak to ethnicity or might speak to income. I think that’s 

really the key. 

Ms. WATERS. Mr. Powell, I saw you shaking your head. That FTC 

report is just wrong, right? 

Mr. POWELL. That specific result I would take issue with. I do 

not believe that it would withstand any sort of objective scrutiny, 

based on the way it was calculated. If I were reviewing that as an 

academic peer reviewer, which is a role that I take on frequently, 

I would not accept that as something that could be stated as a conclusion, based on the measurement. 

Ms. WATERS. I see. Given your academic and intellectual review 

of the study, could you respond to this committee with you conclusion, based on the study that you have alluded to? 

Mr. POWELL. Based on the FTC study— 

Ms. WATERS. Yes— 

Mr. POWELL. From the results that they present, I would conclude that there is not a detectable proxy, that the result they get 

is invalid, and they all but say that in their report, that— 

Ms. WATERS. Would you present that to this committee? Could 

we ask you to give us your conclusion in writing, based on your review and your study? 

Mr. POWELL. I would be pleased to, yes. 

Ms. WATERS. I’m not simply asking for the conclusion, as you are 

giving it now— 

51 

Mr. POWELL. Oh, yes. Sure— 

Ms. WATERS. But because of your intellectual study, I would like 

to see how that is set forth. Thank you. 

Mr. POWELL. I’d be happy to. 

Ms. WATERS. I yield back the balance of my time. 

Chairman WATT. I thank the gentlelady. 

The gentleman from Texas, Mr. Green, is recognized for 5 minutes. 

Mr. GREEN. Mr. Chairman, because Representative Boren needs 

to leave, may I switch places with him, please? 

Chairman WATT. I would be delighted to have you switch places 

with Mr. Boren. 

Mr. GREEN. Thank you. 

Mr. BOREN. Thank you, my good friend, Al Green, and Mr. 

Chairman. 

I just have one question, and starting with Mr. Neeson, going to 

Mr. Hunter, I would like your response on this. As Kevin McCarty 

testified in our earlier panel, there are inherent weaknesses in the 

credit reporting system. Though reports vary, there is no question 

that many credit reports contain mistakes, and it is a lengthy process to correct mistakes, and on the credit report of our constituents 

and your consumers. 

Additionally, the methodology used in credit scoring is opaque to 

customers, leading to greater confusion and hurdles in obtaining 

and maintaining a good credit score. Some business practices in my 

State of Oklahoma allow a consumer to obtain a policy with their 

current credit score and their premium with that company will not 

go above the pricing floor due to this credit score change, due to 

any credit score change. In fact, the consumer’s better credit gets 

a proportionate decrease in the premium. 

So basically, this. If you start getting bad credit—after I go in 

to meet with my insurance agent, and I get a premium let’s say 

on an automobile, if I have bad credit after that, my premium can’t 

go down because my credit rating goes down. If my credit rating 

goes up, I actually save money. And so that is kind of a unique 

thing that is happening in Oklahoma. 

What do you all think about that practice? And is that something 

that our committee needs to kind of look at, at the Federal level? 

Starting with Mr. Neeson, going to Mr. Poe. 

Mr. NEESON. Thank you, Congressman. Again, the industry’s extremely competitive and the pricing algorithms for each company 

vary dramatically, not only in the factors used and the approach 

used. 

For example, as you mentioned, there are a number of companies 

that use credit at the initial issuing of the policy and then either 

don’t use it later or only use it as an improvement factor. There 

are also regulations by different States that may or may not require review of credit over, you know, different years. 

But the short answer to you is yes, many companies do look only 

for the improvements, so that it can be used in a positive fashion, 

again, to retain customers. It’s very hard to sell new customers; 

they want to keep them, so they can continue to have those customers as customers. 

52 

Mr. POE. Thank you, Congressman. Actually, I think that probably a bigger impact of the use of education and occupation is far 

greater than the discussion on credit scores, because if you study 

the use of education, whether you have a 4-year college degree, or 

whether you have a masters degree, or whether you work in a 

white-collar high-paid traditional occupation, it is far greater in the 

impact of every person, in particular minorities and lower-income 

people. 

So to be honest with you, even if you adopted some sort of practice like that, dealing with credit scores, you would not escape the 

inevitable impact that education and occupation has in our industry. So I don’t think it would make any difference, to be honest 

with you. 

Mr. BOREN. Thank you. Ms. Rice? 

Ms. RICE. I think I agree with Mr. Poe that first of all, for consumers sort of coming into the system, you are going to be disproportionately affected, just by sheer virtue of the fact that you 

are using a scoring mechanism, you are going to be disproportionately negatively impacting African-American and Latino customers 

coming into the system. So to say that we are going to disparately 

impact you coming into the system, but you’re not going to have 

to pay a higher premium beyond the higher premium that—the inappropriately higher premium that you paid coming into the system, is not an adequate answer. 

Mr. BOREN. Okay. Mr. Hunter? 

Mr. HUNTER. Well, if I put myself into the position—I don’t agree 

with the use of credit scoring, as I’ve indicated—if credit scoring 

works, then the system you just described makes no sense. I mean 

if credit scoring really works, and somebody gets a worse score, 

their rate should go up. And if it gets a better score, rates should 

go down. And it’s not a zero-sum game. Because if the score doesn’t 

go up, that means there’s less money coming in from the credit 

scoring system, which goes into the base premium. That means the 

people with thin files and all are going to pay more. Today people 

with thin files pay too much because the neutral rate has off-balance built in from inadequate credit scoring collections like that. 

And so the neutral people are going to have pay more, if you 

don’t raise them on the people who are getting worse. But I don’t 

think the whole system should be used at all. But if you use it and 

you really believe in it, then it makes no sense to cap it. 

Mr. BOREN. Thank you all so much. I yield back. 

Chairman WATT. The gentleman from Texas, Mr. Green? 

Mr. GREEN. Thank you, Mr. Chairman. Let’s start with Mr. 

Neeson. Mr. Neeson, do you agree that persons who are more 

wealthy tend to elect to have higher deductibles? 

Mr. NEESON. I’ve not done any study on that, so my opinion 

might be that that would be the case. But— 

Mr. GREEN. If this is true— 

Mr. NEESON. I don’t have that information. 

Mr. GREEN. I understand. You don’t have the empirical data. But 

it seems to suggest—my question would seem to suggest that if you 

have more money, you might have a $1,000 deductible as opposed 

to a $250 deductible. You have not found that to be the case? Persons who have more money tend to take out higher deductibles? 

53 

Mr. NEESON. I have observed that people who want to manage 

their prices, their costs of insurance, take out higher deductibles. 

Our agents often encourage customers to have higher deductibles, 

so that they can manage the expense of their insurance better. 

That’s what I have observed. 

Mr. GREEN. And this means, of course, that these persons with 

higher deductibles are prepared to pay a higher amount of money 

for any infraction, for an accident. 

Mr. NEESON. I think— 

Mr. GREEN. Or they should be, because if you have a $1,000 deductible, you’re going to pay the first $1,000. 

Mr. NEESON. Or they would get a loan to pay for it. Or— 

Mr. GREEN. Right— 

Mr. NEESON. If they think they aren’t going to have a claim. 

Mr. GREEN. But generally speaking, this would benefit a person 

who has the money to pay that $1,000 deductible, wouldn’t it? 

Mr. NEESON. Very wealthy people may not even choose to purchase physical damage on their cars. 

Mr. GREEN. We’re not talking about very wealthy, we’re talking 

about people who are more wealthy than some other people. 

Mr. NEESON. I don’t— 

Mr. GREEN. See, I’m not a very wealthy person, but when I 

was—I’ve had the privilege of being poor, and to have acquired 

some amount of status in life. And when I was poor, I had the lowest deductible I could get and I used my insurance every chance I 

could whenever something happened. But when I gained a little 

more status, then I decided I wanted to get a $1,000 deductible because I’ll pay the first $1,000 to keep you from going up on my policy. That’s what I did. Does that make sense? 

Mr. NEESON. That does make a lot of sense— 

Mr. GREEN. I hope it makes sense, because that’s what your 

agents encourage us to do when we can afford it. 

Mr. NEESON. The premium would be higher for the lower deductible, so a lot of people do use higher deductibles. 

Mr. GREEN. And do you agree that generally speaking, minorities 

in this country—just as a matter of fact—tend to be the persons 

who are less wealthy than others? Generally speaking? 

Mr. NEESON. I’m listening to you. I don’t have any information 

on that. 

Mr. GREEN. You don’t have any observations? Have you kind of 

looked around? 

Mr. NEESON. Certainly. 

Mr. GREEN. Have you not noticed? You read the newspaper? 

Mr. NEESON. Yes. 

Mr. GREEN. Okay. All right. So it’s a fair statement, I think. 

Mr. NEESON. Yes. 

Mr. GREEN. Well, let’s just see how your colleagues feel. Do you 

agree that minorities tend to be poorer than some others in this 

country? If so, raise your hand. 

[Show of hands] 

Mr. GREEN. Okay. Everybody seems to agree with this, Mr. 

Neeson. 

Mr. NEESON. There are wealthy people of all races. 

54 

Mr. GREEN. Yes, there are. But minorities don’t tend to be in a 

disproportionate number of the more wealthy people of all races. 

Do you agree? 

Mr. NEESON. Yes. 

Mr. GREEN. Okay. There are some things that we just have to 

agree to, we can take notice of, without having to have empirical 

evidence. So if this is the case, then probably minorities are going 

to be persons who are not going to have the higher deductibles because generally speaking, you have to be prepared to pay that deduction before you can get your car back and make it road-worthy 

again. 

Let me go on another point quickly. You mentioned teenaged 

drivers increasing the rate paid by some multiple. What was that 

number again? Teenage drivers or a teenage driver coming onto a 

policy? 

Mr. NEESON. I’ve—three or four times. 

Mr. GREEN. Three or four times whatever the current premium 

is? Now this is somewhat enigmatic for me, because I was born into 

a family that happens to be paying a high premium because of my 

father or my mother having a low credit score, and now because 

of my birth—I have no record of driving poorly, I have no credit 

history, but their premium will go up three or four times, some 

multiple, just because I was born into the family. Is this true? Of 

course it is. 

Mr. NEESON. The age of the driver? That had nothing to do with 

credit. 

Mr. GREEN. No, but you’re going to increase the premium some 

multiple, based upon what the mom and pop are already paying, 

right? 

Mr. NEESON. That’s correct. 

Mr. GREEN. Okay. So this driver has no history, has no credit 

score, but that driver is going to increase the family’s premium 

some multiple simply because he was born. 

Mr. NEESON. At least with Westfield, the insurance score is 

based on the parents, so he would benefit from the better insurance 

score of the parents— 

Mr. GREEN. I understand. But if the parents don’t have—suppose 

they have a poor insurance score, then the parents will pay more 

because the child was born. 

Mr. NEESON. Because of the age. And you would probably agree 

that youthful drivers do present a higher likelihood of future— 

Mr. GREEN. I do—but the question is should the multiple that 

the parents pay be increased, based upon that driver being born 

into the family, when the multiple is already high? You see, if you 

neutralize that driver, then it would be okay. But now what you’re 

saying is that family is going to pay some multiple because that 

driver was born, and that multiple is based upon the credit score 

of the parents, not the driver. 

Mr. NEESON. I do know that the majority of people do have better insurance scores. And so the parent would likely benefit from 

that. If we add— 

Mr. GREEN. But those that don’t, does it benefit those who don’t 

have better credit scores? 

Mr. NEESON. They would be paying higher, yes. 

55 

Mr. GREEN. They would be penalized? 

Mr. NEESON. Yes. 

Mr. GREEN. Okay. Thank you. 

Thank you, Mr. Chairman. 

Chairman WATT. I thank all of the members and the witnesses 

for their participation in this hearing. 

Let me just ask Mr. Neeson one question, if I may. A public policy that says one should not be charged a higher insurance rate because of their race, that seems reasonable, then? Okay. So— 

Mr. NEESON. For automobile insurance? 

Chairman WATT. Automobile or homeowners’. So if we just 

passed a law that said, ‘‘Thou shall not discriminate in rates based 

on race,’’ and gave individuals a private right of action, would that 

be preferable to what we have proposed here? 

Mr. NEESON. I know of no company that uses race for pricing— 

Chairman WATT. I didn’t ask you that. I said, would that be preferable to what has been proposed here? I mean, just a straightforward prohibition on using anything that discriminates, and give 

individuals the right to enforce it. 

Mr. NEESON. I as a person, as an individual, feel that it would 

be wrong to charge by race for automobile and homeowners’ insurance. 

Chairman WATT. Okay. Thank you. 

I appreciate it. 

The Chair notes that some members may have additional questions for this panel, which they may wish to submit in writing, as 

well as for the earlier panel. Without objection, the hearing record 

will remain open for 30 days for members to submit written questions to these witnesses and to place their responses in the record. 

We thank every single one of you for your participation today. 

We have been called for votes, and the hearing is concluded anyway, so we came out just in time. Thank you so much. The hearing 

is adjourned. 

[Whereupon, at 1:09 p.m., the hearing was adjourned.] 

(57) 

A P P E N D I X 

May 21, 2008 

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