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58–044 PDF 2010

USE OF CREDIT INFORMATION 

BEYOND LENDING: ISSUES AND 

REFORM PROPOSALS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS 

AND CONSUMER CREDIT 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

SECOND SESSION 

MAY 12, 2010 

Printed for the use of the Committee on Financial Services 

Serial No. 111–134 

( 

(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 

PAUL W. HODES, New Hampshire 

KEITH ELLISON, Minnesota 

RON KLEIN, Florida 

CHARLES A. WILSON, Ohio 

ED PERLMUTTER, Colorado 

JOE DONNELLY, Indiana 

BILL FOSTER, Illinois 

ANDRE ́ CARSON, Indiana 

JACKIE SPEIER, California 

TRAVIS CHILDERS, Mississippi 

WALT MINNICK, Idaho 

JOHN ADLER, New Jersey 

MARY JO KILROY, Ohio 

STEVE DRIEHAUS, Ohio 

SUZANNE KOSMAS, Florida 

ALAN GRAYSON, Florida 

JIM HIMES, Connecticut 

GARY PETERS, Michigan 

DAN MAFFEI, New York 

SPENCER BACHUS, Alabama 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

J. GRESHAM BARRETT, South Carolina 

JIM GERLACH, Pennsylvania 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

ADAM PUTNAM, Florida 

MICHELE BACHMANN, Minnesota 

THADDEUS G. McCOTTER, Michigan 

KEVIN McCARTHY, California 

BILL POSEY, Florida 

LYNN JENKINS, Kansas 

JEANNE M. ROSLANOWICK, Staff Director and Chief Counsel 

(III) 

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND CONSUMER CREDIT

LUIS V. GUTIERREZ, Illinois, Chairman 

CAROLYN B. MALONEY, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

DENNIS MOORE, Kansas 

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

RUBE ́ N HINOJOSA, Texas 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

AL GREEN, Texas 

WM. LACY CLAY, Missouri 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

PAUL W. HODES, New Hampshire 

KEITH ELLISON, Minnesota 

RON KLEIN, Florida 

CHARLES A. WILSON, Ohio 

GREGORY W. MEEKS, New York 

BILL FOSTER, Illinois 

ED PERLMUTTER, Colorado 

JACKIE SPEIER, California 

TRAVIS CHILDERS, Mississippi 

WALT MINNICK, Idaho 

JEB HENSARLING, Texas 

J. GRESHAM BARRETT, South Carolina 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

WALTER B. JONES, JR., North Carolina 

SHELLEY MOORE CAPITO, West Virginia 

SCOTT GARRETT, New Jersey 

JIM GERLACH, Pennsylvania 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

KEVIN McCARTHY, California 

KENNY MARCHANT, Texas 

CHRISTOPHER LEE, New York 

ERIK PAULSEN, Minnesota 

LEONARD LANCE, New Jersey 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

May 12, 2010 ..................................................................................................... 1 

Appendix: 

May 12, 2010 ..................................................................................................... 57 

WITNESSES 

WEDNESDAY, MAY 12, 2010 

Fortney, Anne P., Partner, Hudson Cook, LLP ..................................................... 44 

McRaith, Michael T., Director, Illinois Department of Insurance, on behalf 

of the National Association of Insurance Commissioners (NAIC) .................... 8 

Pratt, Stuart K., President and CEO, Consumer Data Industry Association .... 42 

Rukavina, Mark, Executive Director, The Access Project .................................... 40 

Snyder, David F., Vice President and Associate General Counsel, American 

Insurance Association .......................................................................................... 10 

Wilson, John, Director, Analytics, LexisNexis Risk Solutions ............................. 12 

Wu, Chi Chi, Staff Attorney, National Consumer Law Center ........................... 38 

APPENDIX 

Prepared statements: 

Gutierrez, Hon. Luis ......................................................................................... 58 

Waters, Hon. Maxine ........................................................................................ 63 

Fortney, Anne P. ............................................................................................... 67 

McRaith, Michael T. ......................................................................................... 81 

Pratt, Stuart K. ................................................................................................ 115 

Rukavina, Mark ................................................................................................ 137 

Snyder, David F. ............................................................................................... 147 

Wilson, John ..................................................................................................... 180 

Wu, Chi Chi ...................................................................................................... 186 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Hensarling, Hon. Jeb: 

Written statement of the Independent Insurance Agents & Brokers of 

America, Inc. (IIBA) ...................................................................................... 241 

Kilroy, Hon. Mary Jo: 

Letters of support from various organizations ............................................... 243 

Letter from VantageScore Solutions, LLC, dated May 3, 2010 .................... 255 

(1) 

USE OF CREDIT INFORMATION 

BEYOND LENDING: ISSUES AND 

REFORM PROPOSALS 

Wednesday, May 12, 2010 

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS

AND CONSUMER CREDIT, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

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

2128, Rayburn House Office Building, Hon. Luis V. Gutierrez 

[chairman of the subcommittee] presiding. 

Members present: Representatives Gutierrez, Maloney, Watt, 

Moore of Kansas, Waters, Hinojosa, McCarthy of New York, Baca, 

Green, Scott, Cleaver, Ellison, Klein, Foster, Speier; Hensarling, 

Royce, Capito, Garrett, Neugebauer, Price, Marchant, Lee, Paulsen, 

and Lance. 

Also present: Representatives Kilroy, Manzullo, and Cohen. 

Chairman GUTIERREZ. This hearing of the Subcommittee on Financial Institutions and Consumer Credit will come to order. 

Good morning and thanks to all of the witnesses for agreeing to 

appear before the subcommittee today. 

Today’s hearing will examine the impact that the use of credit 

reports and information has on consumers outside of the traditional 

use for lending and credit purposes. We will examine the use of 

credit-based insurance scores, where the medical debt is predictive 

of a person’s chances of defaulting, and finally, whether or not a 

consumer’s credit information should be used to determine their 

employability. 

We will be limiting opening statements to 10 minutes per side, 

but without objection, all members’ opening statements will be 

made a part of the record. 

We may have members who wish to attend but do not sit on the 

subcommittee. As they join us, I will offer an unanimous consent 

motion for each to sit with the subcommittee and for them to ask 

questions when time allows. 

I yield myself 5 minutes for my opening statement. 

This morning’s hearing is about the use of credit information in 

areas such as insurance underwriting and employment purposes. 

We will hear about important yet complex and often opaque processes concerning credit board insurance and insurance scores in the 

first panel. 

2 

In the second panel, we will hear about issues that are equally 

important to a vast number of consumers—the little known or understood use of credit information for hiring and even firing decisions, and the effect medical debt has on one’s consumer report, 

even after you paid the medical debt off. 

When legislators or regulators attempt to fully grasp an issue 

such as credit-based insurance scores, they see a complex system 

laden with ever-changing computer applications and models, but it 

is precisely this complexity that should make us here in Congress 

delve further into an issue that affects every single American who 

owns or rents a house, a car, has insurance, has a job or is looking 

for a job, or is likely to incur medical debt. 

Do most consumers know that their car or homeowner’s insurance rates may go up due to their credit score? Do they know that 

if one of their medical bills goes to a collection agency and they pay 

it in full and settle it, it will still affect their credit report for up 

to 7 years? 

Do people realize that even in these tough economic times, preemployment consumer credit checks are increasingly widespread, 

trapping many people in the cycle of debt that makes it harder for 

them to pay off their debts and harder for them to get the job that 

would allow them to pay off the debt? 

I wonder—when you go to State Farm or Allstate or GEICO to 

get your insurance and they have a credit score, and that credit 

score was negative, so they are going to charge you more for your 

insurance, do they send you a note in the mail telling you that you 

are going to pay more for that insurance? 

I think these are all very important questions that the American 

public should know. Indeed, the current system facilitates the denial of employment to those who have bad debt, even though bad 

debt oftentimes results from the denial of employment, a vicious 

cycle. You cannot get a job, so you get a bad credit score. You have 

a bad credit score, so you cannot get a job. 

I wonder who is most likely to be affected, especially in these economic times. What? Extend unemployment compensation? What 

about the national debt? 

I have a way maybe we could settle unemployment compensation, how about letting somebody get a job and prove who they are 

without some mysterious number coming out of a black box somewhere where nobody knows about it. 

That is why the subcommittee is holding this hearing, the second 

so far this year on the issue of credit reports, credit scores, and 

their impact on consumers. 

We will look at reports and studies about the predictive nature 

of insurance scores and traditional scores among other things. As 

we do so, we also need to look at the basic guiding principles of equity, fairness and transparency. 

Some have contended that there is no disparate treatment of minorities in credit-based insurance scores. Some will say that even 

if there is a disparate impact on some groups, the system still does 

not need to be changed. 

The question of how predictive a credit-based insurance score is 

on an insured’s likelihood to file a claim is important, as it is the 

predictive value of traditional credit scores used for credit granting. 

3 

As long as there continue to be disparities in the outcomes of the 

current system for racial and ethnic groups and along class and 

geographical lines, I believe the system needs strenuous oversight 

and may need fundamental change. 

How to correct the disparities in the system with this disproportionately negative impact on minorities and low-income groups 

while maintaining the core framework of credit information as a 

risk management tool is a challenge we should take on. 

For example, on issues like the use of credit information for developing insurance pricing and the inclusion of medical debt collection in determining a consumer’s risk of default, I have doubts as 

to whether there are biased uses of data. 

The Equal Employment Opportunity Commission, the Federal 

Reserve, the Brookings Institution, the Federal Trade Commission, 

and the Texas Department of Insurance have all found that racial 

disparities between African Americans, Latinos and Whites in credit scores exist, and we will see this has wide ranging implications 

beyond simply obtaining consumer credit. 

Defending a system where decisions such as determining car insurance rates or even something as vital as to whether or not to 

hire someone is based on something that has shown to possess a 

degree of bias is difficult, to say the least. 

I welcome the testimony this morning of those who believe the 

system works, and of those who believe the system needs to be 

changed to work in a more equitable, fair, and transparent fashion. 

In the same spirit of transparency, I am making it clear at the 

outset that I side with the latter group. I do not think you need 

any sort of score to predict that, from my point of view. 

In order to persuade this committee not to move forward on legislation that would strongly limit what we believe to be unfair 

practices, the industry witnesses before us must prove to me that 

not only are the practices we call into question scientifically predictive, but more importantly, they are fair and equitable to all 

Americans. 

The ranking member, Mr. Hensarling, is recognized. 

Mr. HENSARLING. Thank you, Mr. Chairman. Thank you for calling this hearing. 

As we all know, last week we were greeted with more bad economic news in our Nation as unemployment ticked up yet again to 

9.9 percent. Again, unemployment remains mired at a generational 

high. 

Since the President asked for and the Congress passed the stimulus bill, approximately 3 million of our fellow countrymen have 

now lost their jobs. There are countless stories of hardship, and 

countless stories of suffering. We know that the underemployment 

rate hovers around 17 to 18 percent of our country. 

By any historical standard, we should already be out of this recession. We should have robust GDP growth. We should have robust employment growth. Unfortunately, we do not. 

I believe, as do many, that the reckless spending, the enormous 

debt and deficit that has been brought up on us by this Congress, 

by this Administration, the serial bailouts, the government takeovers, and legislation passed that ultimately restricts access to 

4 

credit have all contributed to the fact that we are still mired at almost double digit unemployment. 

I believe the Administration and Congress are holding back our 

economic recovery, an economy that wants to recover. Economies 

work on reverse gravity. What goes down must come up Yet, this 

recovery has been the most tepid and languishing recovery in the 

modern economic era. I did not even mention the impact of the 

high cost of the new health care bill and the threat of a national 

energy tax. 

As I talk to small business people in the 5th Congressional District of Texas, as I talk to investors, as I talk to bankers, as I talk 

to Fortune 500 CEOs, I hear the same message over and over, and 

that is, ‘‘I am not willing to expand my business and create more 

jobs today. I do not know what the health care costs are going to 

be for my employees. I do not know what the energy costs might 

be associated with cap and trade. I do not know what my tax bill 

is going to be as tax relief expires at year’s end, and I do not know 

how my Nation is going to pay for all of this debt.’’ 

More taxes. More inflation. Given this backdrop, I would hope 

that any legislation that this subcommittee or full committee considers, that we would consider jobs to be job number one for our 

committees. 

I feel we are considering at least three more policy ideas that are 

going to further harm job creation in America by restricting access 

to credit. All of the ideas before us are either going to prohibit accurate data from going into a credit file or prohibit the use of accurate data that may be in a credit file. To many of us, this all has 

the distinct odor of government censorship and even the faint whiff 

of Orwellian thought control. 

The bottom line is, thinner credit files are going to erode riskbased pricing of these products, which in turn is going to lead to 

less available credit and more expensive credit, at a time again 

when our Nation is mired in almost double digit unemployment. 

Should credit scores be used in insurance underwriting? Are they 

predictive? I have seen a number of studies that claim they are but 

most importantly, I suppose those who are using them find them 

to be predictive. 

I believe they have an incentive to get it right. Otherwise, they 

would ultimately lose money and they would have to fold up shop. 

Those who get it wrong ultimately go out of business. Maybe one 

insurance company feels those who wear blue ties are riskier than 

those who do not. I do not know. I do not know if that is predictive. 

It is not logical, but maybe it is. One company may decide to use 

it and another one may choose not to use it. 

Information about discharged medical bills. There are a lot of 

setbacks that one can have in their life that ultimately impact their 

credit: divorce; unemployment; a medical bill. 

At the same time, are they predictive? If they are predictive, if 

we do not allow that information in, ultimately small businesses, 

many of which are organized as sole proprietorships— 

Chairman GUTIERREZ. The gentleman’s time has expired. 

Mr. HENSARLING. In that case, Mr. Chairman, I will stop there. 

Chairman GUTIERREZ. I am going to ask unanimous consent that 

Ms. Kilroy be allowed to sit in this hearing, and grant her 2 minVerDate Nov 24 2008 18:15 Oct 27, 2010 Jkt 058044 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 K:\DOCS\58044.TXT TERRIE
5 

utes for an opening statement. Hearing no objection, it is so ordered. 

Ms. KILROY. Thank you, Mr. Chairman. Thank you for your leadership in this important issue. I thank the witnesses for their time 

here today. I am interested in what you have to say, particularly 

about medical debt and the impact it has on the credit scores for 

millions of Americans, and their ability to get an affordable home 

loan or car loan, long after they have paid their medical debt. 

I ask for unanimous consent to enter into the record a letter 

written to me from my constituent, Julia Mueller of Columbus, 

Ohio. 

She is a responsible young adult, a college student. She pays her 

credit cards on time. She purchased health insurance. She checked 

with them before she was going to have an expensive procedure to 

see if it would be covered. She was assured it was. That was her 

understanding until the bills came and her insurance company denied coverage. She ended up in a year-long dispute with them on 

that. It was eventually resolved, but it destroyed her credit score. 

Now, she is worried about her ability after college to buy a car, and 

to buy a house. I worry it might even affect her ability to get a job. 

I introduced the Medical Debt Relief Act to help hard-working 

Americans like Julia who play by the rules, pay or settle their medical debts, yet find their credit scores adversely affected for years 

to come. 

Today, we are taking an important step in the right direction to 

deal with this important issue. I want to tell Julia when she writes 

to me that, ‘‘I am fiscally responsible and I would like to be treated 

that way,’’ and that is what we are aiming to do here today. 

Thank you, Mr. Chairman. I yield back my time. 

Chairman GUTIERREZ. The gentlelady yields back the balance of 

her time. Mr. Price of Georgia is recognized for 2 minutes. 

Mr. PRICE. Thank you, Mr. Chairman. Mr. Chairman, if the past 

2 years have taught us anything, it is that risk is unavoidable and 

ever present. 

In order for the economy to work, businesses must be able to 

price their products for the risk that they incur. Risk-based pricing 

is especially important when trying to determine the reliability of 

the insured and the exposure of job creators. 

Credit-based insurance scores have proven to be the most predictive factor in determining the likelihood of a consumer filing a 

claim. This risk model enables insurers to more accurately underwrite and price for risk, and when this is done well, everyone wins. 

Democrats want you to believe that everyone should not be 

judged by their past actions. However, it is the American way to 

pull one’s self up by working hard and making responsible decisions. What makes risk-based pricing and insurance scores important is the ability for people to improve their scores and lower their 

rates by paying their bills on time and taking responsibility for 

their financial decisions. 

What would happen if there was no risk pricing? Everyone would 

get the same price regardless of how much an insurer has to pay 

to cover a claim. This would result in significant and dramatic increases in rates to virtually all Americans, less credit available, 

more expensive credit, and more job destruction. 

6 

This is clearly not the most wise avenue. I look forward to the 

testimony and hopefully our response in wisdom. I yield back. 

Chairman GUTIERREZ. Mr. Green is recognized for 2 minutes. 

Mr. GREEN. Thank you, Mr. Chairman. I thank the witnesses for 

appearing. 

Mr. Chairman, I am concerned about credit-based insurance 

scores, especially as they relate to employment. It is very difficult 

to be poor. It is very expensive to be poor. In poor neighborhoods, 

goods cost more. In poor neighborhoods, you find that unemployment is obviously higher for any number of reasons. It is very difficult to be poor. 

When you are poor and you need a job, and it is difficult to get 

a job because of credit scores, it seems that we compound the problem. I am very concerned about how we approach credit scoring 

with reference to employing people, especially people who are poor. 

I look forward to hearing from the witnesses and I look forward 

to solutions such that poor people will not find that they are being 

invidiously discriminated against. 

Thank you, Mr. Chairman. I yield back the balance of my time. 

Chairman GUTIERREZ. The gentleman yields back the balance of 

his time. I ask unanimous consent that Mr. Manzullo be allowed 

to sit on the subcommittee, and hearing no objection, I recognize 

him for 11⁄2 minutes. 

Mr. MANZULLO. Thank you, Mr. Chairman. There is a distinction 

between people who incur medical debt and those who go out and 

charge vacations and consumer items. I practiced law for 22 years 

and have been through probably 1,000 bankruptcies. 

In several of those cases, the people I put into bankruptcy either 

exhausted their insurance or had no insurance and they filed bankruptcy not because they wanted to, not because they did anything 

intentionally, but simply because they could not pay off their medical bills. 

I talked to two colleagues of mine in Rockford, Illinois, who specialize in bankruptcy. The two of them have been through 30,000 

bankruptcies together. One had the record for credit card debt, 

$140,000. 

Mr. Chairman, it was all medical expenses. We have to draw a 

distinction here between people who because of their spendthrift 

outrageous uncreditworthy conduct go out and buy things just because they want them, and people who are caught up, especially 

today, without insurance or lack of insurance or many times very 

high deductibles, co-pays, etc. 

I am a sponsor of this bill because it is the right thing to do, especially with so many credit card companies, the case that my wife 

and I had on a simple $150 coat that was put on layaway, it took 

us 4 years to clear that. It was not until I threatened a lawsuit 

under the Fair Credit Reporting Act that the credit companies finally backed off on it. 

Credit card reporting companies do a job and I understand what 

they are doing, but for people who are the unfortunate victims— 

Chairman GUTIERREZ. The gentleman’s time has expired. 

Mr. MANZULLO. They should not have to suffer the consequences. 

Chairman GUTIERREZ. My friend, Mr. Watt, is recognized for a 

minute. 

7 

Mr. WATT. Thank you, Mr. Chairman. I may not even take a 

minute. I just wanted to applaud your continuing effort to shed 

some light in this area, an area that a number of us started looking 

at during the last term of Congress and found some very disturbing 

things, like credit scores determine your automobile insurance 

rates. I never could quite figure out why somebody’s credit had 

anything to do with their driving record or how somebody’s credit 

had anything to do with the insurance rates that they paid on their 

homeowner’s insurance. 

There are a lot of disconnects here, and we need more information about this so we can make some good judgments and possibly 

do some legislation in this area. I think that is why this hearing 

is so important, and I applaud the chairman for the hearing. 

Thank you. 

Chairman GUTIERREZ. I thank the gentleman. Mr. Garrett of 

New Jersey is recognized for 2 minutes. 

Mr. GARRETT. I thank the chairman, and I thank the ranking 

member, and I thank the members of the panel who are here. 

Credit information has obviously become an essential and valuable tool in allowing various market participants to more accurately price for the risk. 

One of the areas we are examining today is how this information 

is used by property casualty insurance companies in determining 

the premiums they charge to their clients. There have been numerous actuarial reports that have studied this. By using consumerbased insurance or CBIS, in determining premium rates for P&C 

lines, insurance companies are basically more able to accurately 

price for the risk of the consumer and the rates have significantly 

decreased for a broad majority of the policyholders. 

Credit scores are really just one of a number of different data 

points that insurers consider when determining a consumer’s premium. 

If we were to now limit or restrict certain types of information 

from being used to allow insurers to more accurately price for risk, 

two things are going to happen: One, more people will pay higher 

premiums; and two, fewer people will be able to purchase insurance. Neither of these things are good. 

In the wake of the recent financial crisis, instead of looking for 

ways to decrease credit availability and the accurate pricing of risk, 

I believe Congress should be considering policies that will help expand credit for consumers and small businesses and lower the cost 

of credit and insurance premiums for the majority of Americans. 

With our current unemployment rate around 10 percent, we really must work on initiatives to expand economic opportunities for all 

Americans, not ways for the government to micro-manage our Nation’s small businesses and risk trying to restrict the aggregate 

price of risk. 

With that, I yield back the balance of my time. 

Chairman GUTIERREZ. Last for our side, we have Congresswoman Maloney for 30 seconds. 

Mrs. MALONEY. Thank you, Mr. Chairman. First, I want to welcome Mr. Wilson. LexisNexis is headquartered in the district I represent and I am very proud to represent his company which is so 

valuable to our country. The number of consumer complaints reVerDate Nov 24 2008 18:15 Oct 27, 2010 Jkt 058044 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 K:\DOCS\58044.TXT TERRIE
8 

lated to credit scores have been going up, and I look forward to his 

testimony and others on how we can better move forward in a way 

that is fair to consumers and fair to business. Thank you. 

Chairman GUTIERREZ. We have two panels this morning. The 

first panel will focus on the use of credit information for insurance 

underwriting and ratings, and the second panel will focus on the 

use of credit information in other areas such as employment. 

The first panel consists of three witnesses. First, the honorable 

Michael T. McRaith, director of the Illinois Department of Insurance, on behalf of the National Association of Insurance Commissioners. I welcome Mr. McRaith here from Illinois. He is doing a 

great job out in the State of Illinois. I am happy to have him here. 

Then, we have Mr. David Snyder, the vice president and associate general counsel of the American Insurance Association. 

Our third witness is going to be introduced by Mr. Price of Georgia. 

Mr. PRICE. Thank you, Mr. Chairman. Mr. Wilson is a constituent and I want to welcome him to our panel today. Mr. Wilson 

serves as the director of analytics for the Insurance Data Services 

Group at LexisNexis Risk Solutions. He joined Equifax in 1983, 

and his early experience included roles as a marketing analyst and 

as a field operations manager for electric gas and telephone utility 

customers, and he then served as manager of strategic planning 

and research before moving to Equifax Insurance Services in New 

Product Development. He has worked extensively on the development and introduction of the first credit scoring models, and has 

a wealth of knowledge in this area. 

In his current role with LexisNexis, he continues to support insurance risk scoring models and manages a team of statisticians 

and modelers, holds a B.A. in marketing from Oglethorpe, a grand 

university down in Georgia, and an MBA from Mercer University, 

another great education institution in Georgia. 

We want to welcome Mr. Wilson. 

Chairman GUTIERREZ. You are welcome here. We are going to 

start with the gentleman from Illinois, Mr. McRaith. You are recognized for 5 minutes. There is a clock there. It is green at the start 

of your 5 minutes. When there is a minute left, it will turn yellow. 

When you see it turning yellow, you have a minute left. A minute 

can last quite a while. When you see it turn red, I will tap. Five 

seconds later, we hope you will wrap it up. 

Please, Mr. McRaith, you are recognized for 5 minutes. 

STATEMENT OF MICHAEL T. McRAITH, DIRECTOR, ILLINOIS 

DEPARTMENT OF INSURANCE, ON BEHALF OF THE NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS 

(NAIC) 

Mr. MCRAITH. Thank you. Chairman Gutierrez, Ranking Member 

Hensarling, and members of the subcommittee, thank you for inviting me to testify. I am Michael McRaith, director of Insurance in 

Illinois, and I serve as chairman of the Property and Casualty 

Committee for the National Association of Insurance Commissioners. 

9 

Today, I offer the views of my fellow regulators on behalf of the 

NAIC. Thank you for your attention to the use of credit information in personal lines insurance. 

H.R. 5633, introduced and sponsored by the chairman last year, 

coincided with our own effort to scrutinize the use of insurance 

scores. As regulators, we do not fashion public policy. Those decisions are made by Congress and State legislatures. 

States view insurance scores from different perspectives. Some 

States have banned the use of credit information, others impose 

rate bans or prohibit use on renewal or allow only if credit information would reduce premium. Still others require only that credit not 

be the sole basis for an insurer’s decision. 

In Illinois, unlike most States, our law requires only that insurers consider extraordinary life events and does not even recognize 

military deployment as an extraordinary event. 

In Illinois, an older gentleman from a small town wrote that he 

had paid cash for everything his whole life, car, farm land, etc. His 

handwritten note explained that he bought car insurance before 

the law required, never ate fancy meals or bought pricey clothes. 

He even added that he had been married 47 years to the same 

woman, but confronted a greater than 20 percent premium increase 

due to his thin file. 

Illinois law should be improved. 

For the NAIC, we applaud this committee’s desire to move past 

the rhetoric of interested parties and toward a fully informed approach. To that same end, the NAIC held public hearings in 2009. 

Interested parties, insurers, actuaries, and insurance score vendors 

argued that insurance scores allow for more accurate underwriting 

and rating. 

Consumer representatives argued that credit-based insurance 

scores have a disparate impact on members of protected classes 

and are premised upon irrelevant if not inaccurate information. 

We heard in great length about the studies that support both positions. In our own States, insurers sell homeowner insurance in 

urban neighborhoods where homeowners were previously stretched 

to find affordable coverage. Insurers argue that credit-based insurance scores have facilitated that market change. 

Studies also indicate that individuals of racial and ethnic minority heritage are overrepresented in low credit score categories and 

that credit-based insurance scores discriminate on the basis of that 

heritage. 

Our national focus has turned. Rather than engage in that circular debate, we have undertaken a two-pronged strategy to assist 

policymakers. 

First, we are developing a standardized data call or detailed interrogatories for personal lines auto companies. This data call will 

target the impact of different factors upon rates paid by consumers: 

gender; marital status; age; and credit score, among others. 

This data will enable Congress and the States to measure the 

consumer and market impact of one State’s law versus another’s. 

Second, the NAIC is developing a model law to bring insurance 

score vendors within insurance regulator oversight. 

10 

One panelist indicates in written testimony that those vendors 

are already subject to State regulator oversight, an assertion with 

which we largely agree. 

However, those same vendors argued the exact opposite before 

the NAIC, and we intend to eliminate the ambiguity. 

As digital information expands insurer access to consumer specific details, insurance regulators remain vigilant in protecting consumers against potentially abusive underwriting and rating practices. 

We are watchful for any underwriting or rating formula that may 

constitute a proxy for race, gender or other protected characteristics. Insurance must function as insurance. 

For the NAIC, we appreciate the chance to assist this subcommittee and pledge our continued support of your efforts. With 

our two-pronged approach, State regulators intend to offer reliable, 

fact-based information for Congress and the States. As our data 

call and model law development conclude, we will deliver the results to this committee and to Congress. 

Thank you for your attention. I look forward to your questions. 

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

81 of the appendix.] 

Chairman GUTIERREZ. Thank you so much. 

Mr. Snyder, you are recognized for 5 minutes, sir. 

STATEMENT OF DAVID F. SNYDER, VICE PRESIDENT AND ASSOCIATE GENERAL COUNSEL, AMERICAN INSURANCE ASSOCIATION 

Mr. SNYDER. Good morning. Chairman Gutierrez, Ranking Member Hensarling, Mr. Price, and members of the subcommittee, my 

name is Dave Snyder, and I am vice president and associate general counsel for the American Insurance Association. 

In the midst of the financial turmoil and its related chaos, the 

U.S. property and casualty insurance sector is stable, secure, and 

strong. There are good reasons for this. 

We, you and the States never lost sight of our fundamental 

shared goals, reduce risk where possible, accurately assess and assume the remaining risk, and provide effective coverage to the 

American people. 

As a result, auto and homeowner’s insurance markets are by 

every measure financially sound, competitive, and affordable. 

Claims are being paid daily by solvent companies. The market is 

very competitive by any measure and insurance is taking less of a 

bite out of household incomes than in the past. 

This is good for the economy because this maximized competition 

forces prices down to the lowest feasible level so people have money 

to spend on other things. 

Insurance scoring has played a major role in creating this positive market for all concerned. By empowering more effective risk 

assessment and pricing, the majority of the population pays less. 

Insurance is more available and more people can receive reasonably priced coverage, instead of being relegated to the high-risk 

pools, because insurers have a cost-effective tool to assess and price 

for risk, giving them the certainty they need to provide coverage 

to nearly everyone. 

11 

You have asked us to address certain issues relating to insurance 

scoring. In summary, it is race and income blind, and has repeatedly been proven to be an accurate predictor of risk, indeed, one 

of the most accurate. 

The States have actively regulated it and insurance commissioners have full access to all the information they desire. 

In response to your request for recommendations, we suggest 

that all States adopt the National Conference of Insurance Legislators’ model law. 

Second, the States should make sure they capture and analyze 

all of the credit complaints they can and communicate with insurance companies about them, individually, and any trends. 

We note, for example, from Director McRaith’s testimony, that 

the rate of complaints under the existing system for credit-based 

insurance scores is about 1 complaint out of every 1.5 million policies issued or renewed. 

In addition, we all need to work together more effectively on financial literacy to help the American people understand how insurance scores are used by insurance companies to provide them with 

coverage. 

There is one other recommendation we did not emphasize in our 

written statement, that is to make it more possible to innovate on 

a pilot basis. For example, to introduce more direct measures of 

driving performance, such as the ability to assess risk, based not 

only on mileage, but how, when, and where those miles were driven. 

One other factor in the strength of the personal lines insurance 

market is that we have collectively reduced risk. Thanks to your 

leadership and that of safety groups, the insurance industry, and 

the States, far fewer Americans are injured and killed on our highways than ever would have been expected. 

Using fatality rates of 1964, last year alone, we have collectively 

saved 120,000 lives and prevented millions of injuries. This has 

created a solid foundation of the healthy auto insurance system we 

have today. 

The insurance industry is focused on building safety as never before through advocacy of smoke detector laws and codes requiring 

sprinklers and disaster resistant buildings, and the eminent opening of a building construction test center with wind turbines powerful enough to test the structural integrity of buildings. 

We hope to see a pattern of positive change similar to that which 

we helped bring about in auto safety with your cooperation and assistance. 

Thank you for inviting me to speak with you today. I would be 

pleased to answer any questions you may have. 

[The prepared statement of Mr. Snyder can be found on page 147 

of the appendix.] 

Chairman GUTIERREZ. Mr. Wilson, you are now recognized for 5 

minutes, sir. 

12 

STATEMENT OF JOHN WILSON, DIRECTOR, ANALYTICS, 

LEXISNEXIS RISK SOLUTIONS 

Mr. WILSON. Good morning. My name is John Wilson, and I am 

director of analytics for the Insurance Data Services Group at 

LexisNexis Risk Solutions. 

LexisNexis provides technology and information that helps businesses, government agencies, and other organizations reduce fraud 

and mitigate risks. 

In our Insurance Data Services Group, we provide a variety of 

products and services to support the insurance industry, including 

credit-based insurance scores. 

In my remarks today, I will focus specifically on how our insurance scores are developed, utilized, and regulated. 

Credit-based insurance scores have long been used by insurance 

underwriters and actuaries to more accurately assess risk for auto 

and homeowner’s insurance policies. Insurance scores provide an 

objective, effective, and consistent tool that insurers use with other 

information such as driving histories and prior claims to better predict the likelihood of future claims and the cost of those claims. 

Deriving an insurance score follows a straightforward process. A 

carrier compiles historical policy experience, including earned premiums and incurred losses, on a selected population of risks. 

LexisNexis then works with the credit bureau to match that policy experience to the historical consumer credit from the particular 

point in time to which the policy performance data pertains. Then, 

using regression techniques, we identify the credit variables that 

taken together provide the best representation of the observed loss 

ratio performance. 

Most credit variables can be grouped into one of five primary 

areas: one, how long you have had accounts established; two, the 

number and type of accounts that you hold; three, indications of recent activity, including inquiries and new account openings; four, 

the degree of utilization on your accounts; and five, payment history. 

The relevant weight of each of these areas can vary depending 

on the line of business being modeled but for any specific model, 

the insurance regulator is given access to the individual variable 

descriptions, bins, and point assignments. 

Insurance scores do not consider factors such as race, religion, 

national origin, gender, marital status, age, sexual orientation, address, income, occupation, disability or education. Also, inquiries 

made for account review or promotional or insurance purposes are 

not used in calculating insurance scores. We also exclude medical 

collections. 

It is important to note that while LexisNexis provides insurance 

scores, we are not an insurance company. We are not involved in 

insurer rate setting determinations or rate decisions with respect 

to groups of individuals or individual consumers. 

LexisNexis is also not a consumer credit bureau, and we do not 

make credit decisions. Our role is to supply information to the insurance carriers to assist them in making underwriting decisions. 

The credit-based insurance scoring process is currently regulated 

at multiple levels. LexisNexis is considered a consumer reporting 

13 

agency under the Federal Fair Credit Reporting Act and its State 

analogues. 

As required by that Act, LexisNexis provides consumers upon request with access to all the information in the consumer’s file at 

the time of the request. We have also set up a process by which 

any consumer may order a copy of their insurance score via our 

Choicetrust.com Web site. 

Additionally, because insurance is regulated at the State level, 

LexisNexis must conform its models to specific State statutes, regulations, and guidelines relative to insurance scoring. 

Most States have adopted regulations based on the model law on 

insurance scoring developed by the National Conference of Insurance Legislators. 

Pursuant to State requirements, a third party vendor like 

LexisNexis must file its model for review with State insurance departments. In many States, carriers are required to include the 

LexisNexis model filing materials in their rate filing. In other 

States, a carrier may be allowed to reference the LexisNexis model 

once it has been filed. 

Finally, the insurer must gain approval of its rate filing that may 

include an insurance scoring component. 

As a result, LexisNexis works on an ongoing basis with State departments of insurance to explain our models and to create Stateapproved scoring solutions for our insurance customers. 

In addition, LexisNexis provides two consumer Web sites, 

Choicetrust.com and Consumerdisclosure.com, to make information 

about our insurance scores and processes more readily accessible to 

consumers and to other interested individuals. 

In conclusion, credit-based insurance scores provide an objective, 

effective, and consistent tool that insurers use with other information to better predict the likelihood of future claims and the cost 

of those claims. 

There are existing Federal and State regulation and approval 

processes that provide comprehensive oversight by individual State 

departments of insurance over insurance scores, insurance score 

developers, and the use of insurance scores. 

LexisNexis works cooperatively with State insurance commissioners and their staffs in seeking approval for our scoring models. 

I appreciate the opportunity to provide the subcommittee with information on insurance scoring, and I am happy to answer any 

questions you may have. 

[The prepared statement of Mr. Wilson can be found on page 180 

of the appendix.] 

Chairman GUTIERREZ. Thank you so much. I welcome all of you 

here. I know there are a lot of questions because I can see that 

quite a number of members have shown up this morning. 

Let me just take a couple of minutes, and then I will allow members to ask questions. I will just make some general comments. 

If someone has cancer and they become very ill and they do not 

have health insurance, they are likely to suffer great economic 

harm, and that is going to affect their credit score. 

Let me ask you, if someone becomes ill, is it more likely they are 

going to drive quickly, get into an accident, or drive erratically if 

14 

they become ill? Their credit score, as we know, is going to be affected. 

Each of you answer the question, please, from left to right. Mr. 

McRaith? 

Mr. MCRAITH. Mr. Chairman, first of all, let me say and also in 

reply to Congresswoman Kilroy’s concern about medical expenses, 

we are aware that two-thirds of all personal bankruptcies are 

based on medical costs. Three-quarters of those people filed even 

though they had health insurance. It is a significant problem. 

Different States have adopted different approaches to dealing 

with an extraordinary life event like medical expenses as you have 

described, and allowing— 

Chairman GUTIERREZ. If you use my credit score, a deteriorating 

credit score, is it more likely I am going to cause the insurance 

company additional liability? 

Mr. MCRAITH. To answer that question, I do not know the answer to that. I am not sure that anyone has explained directly the 

nexus between credit score and driving. 

Chairman GUTIERREZ. Mr. Snyder? Am I more likely to survive 

cancer and have incredible debt? Is my house more likely to have 

a fire? 

Mr. SNYDER. Mr. Chairman, the answer to that is no. That is 

why we have supported language in the National Conference of Insurance Legislators’ model that removes collection accounts with a 

medical industry code. That is what was done first, and then this 

past summer, the National Conference of Insurance Legislators 

tightened that up even more with our support. 

It removes the consideration of negative factors resulting from a 

serious illness or injury. 

Chairman GUTIERREZ. Just for the record, just so it is clear to 

all the members of this committee, you are coming here representing who? Just so we have it for the record. You are representing the American insurance industry? 

Mr. SNYDER. Yes, sir. 

Chairman GUTIERREZ. Thank you. Mr. Wilson, you provide them 

with the information, so what do you think? 

Mr. WILSON. We have not tried to study the specific question 

that you have asked. We also agree that medical collections should 

not be used in our scores. 

Chairman GUTIERREZ. But they are used in scores. 

Mr. WILSON. They are not. 

Chairman GUTIERREZ. In your credit report, they are. If someone 

fails to pay a medical bill, it has a derogatory impact on my credit 

report, which is going to have a derogatory impact on my credit 

score. 

Mr. WILSON. I am not going to— 

Chairman GUTIERREZ. You cannot. It shows up. In other words, 

Mr. Wilson, if someone does have difficulty paying a hospital bill 

and it goes to a collection agency, does that show up on the individual’s credit report? 

Mr. WILSON. It will show up on the credit report. 

Chairman GUTIERREZ. Does it have a derogatory effect on their 

credit score? 

Mr. WILSON. It is not used in our scores. 

15 

Chairman GUTIERREZ. It is not used in your scores, but it is used 

in their credit reports. 

Mr. WILSON. It is on the credit report. 

Chairman GUTIERREZ. Thank you. It is used on the credit report. 

Everybody has witnesses here. I do not think Mr. Wilson is too 

upset at me asking him the questions. 

What we are trying to get at here is how is it that people who 

have an accident, who have an illness, in the end are not deprived 

of insurance even though they had no way of dealing with this and 

maybe it does not have anything to do with them. 

Let me ask, if I am employed and I become unemployed and cannot pay my bills because I have become unemployed, does that 

mean I am more likely to have an accident or fire in my house? 

Mr. Wilson? 

Mr. WILSON. Again, the scoring models that do look at delinquent 

payments which would potentially be a result of having lost a job 

show that those delinquencies are in fact indicative of greater risk 

of claim filing. 

Chairman GUTIERREZ. Therefore, I would pay more in health 

care insurance? I am sorry. Therefore, I would pay more in car or 

home insurance? 

Mr. WILSON. You could; yes. 

Chairman GUTIERREZ. I would. 

Mr. WILSON. Not every carrier uses credit scoring and the 

weights— 

Chairman GUTIERREZ. Thank you. My time has expired. 

Mr. SNYDER. Mr. Chairman, if I might, just to provide a further 

response to that, the extraordinary life circumstances language 

added to the National Conference of Insurance Legislators’ model 

specifically excludes the use of loss of employment for a period of 

3 months or more if it results from involuntary termination. 

Yes, that is a factor which we are trying to work with consistent 

with your question. 

Chairman GUTIERREZ. Thank you. 

Mr. McRaith. Mr. Chairman, if I could add— 

Chairman GUTIERREZ. I am sorry. I ask unanimous consent for 

10 more seconds. Mr. McRaith, please? 

Mr. MCRAITH. They cannot both be true; if medical loss expenses 

are not considered, then there would be no reason to have an extraordinary life exception. Also, the so-called NCOIL model has 

been adopted in different States in different variations, as I said. 

The State of Illinois, for example, only requires that the company 

consider such an event. 

Chairman GUTIERREZ. Thank you. 

I recognize Mr. Price for 5 minutes. 

Mr. PRICE. This is a remarkably important topic and I think 

there is a lot of misinformation that is going into the debate, and 

there is a lot of hyperbole that occurs. I am hopeful that throughout the question period in this hearing, we will be able to sort out 

some of that. 

Mr. Wilson, you mentioned in your testimony that the main variables, the primary areas where credit variables are looked at are: 

length of time of an account; number and type of credit accounts; 

16 

indications of recent activity; the degree of utilization; and payment 

practices. 

In your next statement, ‘‘Insurance scores do not consider factors 

such as race, religion, national origin, gender, marital status, age, 

sexual orientation, address, income, occupation, disability or education.’’ 

Given that, why do you think there is all this misinformation 

about what goes into a credit score? 

Mr. WILSON. I do think some of the comments that were introductory to this session are accurate, that not every consumer has 

a clear understanding of all of the details of credit reports, credit 

scoring, or how these things are used in making decisions about 

them. 

I do think we have tried to be out there making information 

available to consumers. We developed training programs for continuing education credits for agents, insurance agents, because 

they are very often the first line of answering questions about 

these things. 

Mr. PRICE. Providing a score, you are not an insurance company, 

you are not a credit bureau, you do not provide credit, you provide 

information? 

Mr. WILSON. Right. 

Mr. PRICE. There is a lot of information that goes into the rationale for why a consumer might be excluded from gaining credit. I 

would be interested in the opinion of the panel on if we as a Congress determine we ought to exclude certain things from being considered, is it possible that would actually harm consumers as opposed to helping consumers, Mr. Wilson? Mr. Snyder? 

Mr. SNYDER. Mr. Price, the FTC estimated that 59 percent of the 

people pay less as a result of credit-based insurance scores. Frankly, in public testimony given by companies in the States, the numbers are really much higher for many companies. 

We would envision first of all a very negative effect on the vast 

majority of policyholders directly. Secondly, it would deprive the 

market of a critical tool that has allowed the market to evolve 

much more toward objective underwriting individually tailored to 

each risk, which in turn is giving the companies the confidence to 

write virtually everybody. 

Under the old system that was sort of pass/fail, you were either 

very good, normal or you were relegated to the high cost assigned 

risk plans. 

Now, because of the tool that is capable of individual accurate 

and objective risk assessment, insurance companies are pretty 

much able to write anyone who comes to them, which has resulted 

in the shrinkage to historic lows of these high risk pools, so there 

are a number of harms that would come, some directly, to the majority of policyholders, and then indirectly to a market as a whole 

resulting in less competition and potentially less availability of insurance. 

Mr. PRICE. And higher costs? Less availability and higher costs. 

Mr. SNYDER. And higher costs. 

Mr. PRICE. Mr. McRaith, do you agree with that? 

Mr. MCRAITH. Congressman, we should always be concerned 

about unintended consequences and certainly the pricing of one 

17 

risk in a company’s pool affects the pricing of another risk in that 

same pool. 

However, we should not accept as gospel that 60 percent of people benefit from the use of credit-based insurance scores because 

we do not know what the baseline is. 

Mr. PRICE. Do you dispute that number? 

Mr. MCRAITH. What I am saying is, I described earlier our effort 

with the data call to collect information from insurance companies. 

One is to get behind the rhetoric which argues that a certain percentage of consumers benefit from the use of credit-based insurance 

scores. We do not know when we hear the word ‘‘benefit,’’ what is 

the starting point. We do not know what the baseline is. That is 

what we intend to find out. We will report back to you. 

Mr. PRICE. Mr. Wilson, do you have any comments? 

Mr. WILSON. No. 

Mr. PRICE. In the remaining seconds, what factors did Congress 

rely on when examining and endorsing the non-lending uses of 

credit information while amending the Fair Credit Reporting Act in 

1996 and the FACT Act in 2003? 

Mr. Snyder? 

Mr. SNYDER. Congress continued the ability of insurers to use 

credit information for insurance underwriting, and that has long 

been the case. Congress continued that through the recent amendments. 

The recent amendments also made the whole credit scoring system better. Frankly, we have a major interest in making sure that 

scores are accurate and that people have access to their credit history and the ability to correct any issues that may exist. 

I think the Congress improved all of that through the most recent amendments, but did maintain the long-standing ability on 

the part of insurers to use credit for underwriting subject to Federal law under the Fair Credit Reporting Act, and all that implies 

as well as being currently State regulated, all the State regulation 

that applies as well. 

Mr. PRICE. Thank you, Mr. Chairman. 

Chairman GUTIERREZ. The time of the gentleman has expired. 

Mr. Watt, you are recognized for 5 minutes, sir. 

Mr. WATT. Thank you, Mr. Chairman. I want to try to make a 

distinction here between causation and correlation. I take it, Mr. 

Wilson, you are in the nexus business. That is the correlation business. What you are saying is, there is a correlation between somebody’s credit score and these factors that impact driving insurance 

rates and homeowner’s insurance rates. 

I am not clear whether you are prepared to assert to me that 

there is some causal connection between those things as opposed 

to a correlation between those things. 

Let me ask the question directly: Are you prepared to assert to 

me that if I have a low credit score, that will cause me to be a 

worse driver? 

Mr. WILSON. No. 

Mr. WATT. Are you prepared to assert to me that if I have a low 

credit score, that is likely to cause me to have a fire at my house? 

Mr. WILSON. I am not saying it is causal. 

18 

Mr. WATT. You are saying that the correlation factor makes it 

more likely that I will be a bad driver; right? That is what the 

nexus is in your LexisNexis, I take it. Is that right? 

Mr. WILSON. I am not actually familiar with what the nexus in 

our LexisNexis— 

Mr. WATT. Do not waste my time on hyperbole. Let’s talk about 

insurance, not LexisNexis. I am sorry. I got you off track. You are 

saying there is a correlation. 

We have made it explicitly clear that if there is a correlation between race and bad driving or race and more likelihood that I will 

have a fire, that is prohibited; right? You cannot take that into account. There is no question about that. 

If you find some substitute for race that correlates in the same 

way, has the same impact, would you think it would be appropriate 

to use that as a factor and then turn around and say well, no, we 

are not considering race at all, we are just considering this correlation factor that we have out here? 

Mr. WILSON. You are giving me a hypothetical. 

Mr. WATT. No, I am just asking you a question. Would you think 

it would be appropriate to do that? 

Mr. WILSON. If you could find a pure proxy, you should not be 

able to use it; yes. 

Mr. WATT. Okay. What about you, Mr. McRaith? I assume you 

would not think it would be appropriate to do that. 

Mr. MCRAITH. It is absolutely fair to say, Congressman, that the 

States have taken different approaches to this subject. If one factor 

were identified to be a proxy, I believe all States would be opposed 

to that. 

Mr. SNYDER. Mr. Watt, if I might add that— 

Mr. WATT. I am not sure I asked you anything, Mr. Snyder. You 

are welcome to add something. 

Mr. SNYDER. Thank you, sir. The FTC did conclude that creditbased insurance scoring is not serving as a proxy for race. 

Mr. WATT. I read that study. We had a hearing about that study. 

It did not exactly say that. I understand you want to get that in 

the record. Maybe we ought to put that study in the record. We 

had it in the record last year when we had a hearing about this. 

That is not exactly what it says. 

It says kind of there is the same kind of correlation that you are 

talking about as legitimate here for credit-based scoring between 

this and race. You want to use it on one side and say we like the 

correlation on one side and we are going to use it, and on the other 

side, we do not like the correlation, so we want to say no, no, we 

should not be using correlations here. 

Is there not a strong correlation between these factors and race? 

That requires either a yes or no answer. Is there a strong correlation or is there not? 

Mr. SNYDER. It found that it was not a proxy for race. 

Mr. WATT. I heard that. That is what you testified to earlier. 

That is not the question I asked. I want to know, is there a strong 

correlation, not whether there is a proxy. I do not think anybody 

in here knows what ‘‘proxy’’ means. 

Tell us, is there a strong correlation or not? 

19 

Chairman GUTIERREZ. The time of the gentleman has expired. 

Answer the question. 

Mr. SNYDER. It found that there were larger percentages in various demographic groups with lower credit scores than other 

groups. It also found that within these groups— 

Chairman GUTIERREZ. Your time has expired. 

Mr. WATT. Can I just get him to answer my question, Mr. Chairman? 

Chairman GUTIERREZ. I tried. We will come back around. 

Mr. WATT. I just want to know whether there is a strong correlation or not. That is a simple question. It is not a trick. 

Chairman GUTIERREZ. Mr. Marchant, you are recognized for 5 

minutes, sir. 

Mr. MARCHANT. Thank you. Mr. Wilson, talk to us about the relationship you have with your customer. Your customer is an insurance underwriter, salesman, company? 

Mr. WILSON. Right. Our primary customer is the underwriting 

department and/or the actuarial department in the personal lines 

property casualty industries. 

Mr. MARCHANT. Is a major consideration—would the insurance 

company come to you regardless of whether there was credit being 

extended to the customer to purchase the product? 

Mr. WILSON. Yes. The credit scoring used by insurance companies is generally not a part of say premium finance decisions. It is 

a risk indication. 

Mr. MARCHANT. The credit history that you are looking at has 

nothing to do with the fact as to whether the insurance company 

is going to get paid for the product they are selling? 

Mr. WILSON. Right. It is not about payment of premium. 

Mr. MARCHANT. It is purely a historical fact that gets plugged 

into the fact of what they pay for insurance actually; right? 

Mr. WILSON. Right. The credit factors or the score in conjunction 

with driving record, in conjunction with coverage amounts, in conjunction with prior losses, it all goes into the underwriting or rating of the policy. 

Mr. MARCHANT. If a customer comes to the insurance company 

and says, I want this kind of coverage and I am going to pay cash, 

the companies still go through the same process, and if your information taints that customer, even though they are planning to pay 

cash or pay for it other than with that company, it still taints that 

customer or has the potential to taint them? 

Mr. WILSON. Right. If the carrier does use credit scores as part 

of their rating, then it would be used even if the consumer were 

paying cash for their premium. 

Mr. MARCHANT. This is the complaint that I get from my constituents the most. They feel that because they have had bad credit 

or they have had a car repossessed or they paid their last insurance policy and their premiums were slow, they feel like when they 

apply for more insurance, the reason why their insurance—the rate 

has been raised is because there is a direct correlation between the 

late payments on a previous policy. 

You are saying it is the late payments on any kind of credit they 

may have? 

Mr. WILSON. That is right. 

20 

Mr. MARCHANT. Not specifically on that product, on the insurance itself? 

Mr. WILSON. On the premiums; right. 

Mr. MARCHANT. You give the report to them, but it is up to the 

underwriting department to make its own decision based on your 

report, how much they weigh each of those things? 

Mr. WILSON. That is correct. 

Mr. MARCHANT. What is your experience in that weighing process? Is it pretty reliable if you have a very low credit score that 

you are going to pay more for your insurance? 

Mr. WILSON. These scores have been tested not only by independent parties like actuaries and the Federal Government and the 

Texas Department of Insurance, but also by carriers themselves. 

Carriers would not use these tools if they did not work well for 

them. There is a great deal of variation, however, in the weight 

that individual carriers assign to credit score in their overall rating 

programs. 

Mr. MARCHANT. Mr. Snyder, in your particular instance, would 

a driving record be a significant factor in your information that you 

gave to an underwriter that bought your service? 

Mr. SNYDER. Absolutely. Auto insurance rating generally involves 

not only credit information but the age of the driver, the prior driving experience, the make and model of the vehicle, and on and on. 

The ultimate underwriting and rating decision is based upon many 

factors, only one of which is credit. 

Chairman GUTIERREZ. The time of the gentleman has expired. 

Mr. Moore is recognized for 5 minutes. 

Mr. MOORE OF KANSAS. Thank you, Mr. Chairman. 

Our Oversight and Investigations Subcommittee held the first in 

a series of hearings last week on the topic of the end of excess, a 

broad look at lessons learned from the crisis. 

I believe that one lesson from the financial crisis is we need to 

go back to living within our means and that is true for our government, for financial firms, for businesses, families, and individuals. 

Mr. Snyder, I agree with the point you make in your testimony 

that we need to increase financial literacy, which will be the focus 

of one of our subcommittee hearings in our lessons learned series. 

We need to teach personal finance to our students in high school 

and college, ensuring that our young people are fully empowered to 

make sound financial decisions. 

Mr. Snyder, as we think about credit scores, how can we encourage individuals to regularly review their credit report, correct any 

misinformation, and learn how to build their credit scores? 

Mr. SNYDER. Thank you. It is a message which we try to repeat 

on Web sites. Attached to my testimony is some information where 

we talk about what goes into an insurance score and the need to 

stay on top of it. There are adverse action notices that make that 

point as well. I know the credit industry is doing a lot. 

Frankly, we look forward to increased cooperation with the Congress and the States on improving financial literacy. We have done 

some work on our own. We would like to work collaboratively to see 

what we can do to raise the level of financial literacy for everyone 

in this country. 

21 

Mr. MOORE OF KANSAS. Mr. McRaith or Mr. Wilson, do either of 

you have any comments? 

Mr. MCRAITH. Financial literacy is important for all sectors of 

consumer finance. Insurance in particular can be very confusing to 

the average family, the average small business. States are committed to helping consumers understand how their insurance policies are underwritten, how they are priced, and providing whatever 

direct consumer assistance we can. 

Mr. MOORE OF KANSAS. Mr. Wilson? 

Mr. WILSON. I would agree with the gentleman. 

Mr. MOORE OF KANSAS. Mr. McRaith, in your experience as a 

State regulator, how accurate are these credit scores? Do they get 

abused in how are they used by insurance firms? Do credit scores 

assign reasonable value if one is comparing medical debt to excessive spending habits, and do insurance firms focus more on credit 

scores or the inputs that provide the credit scores? What is your 

view? 

Mr. MCRAITH. Congressman, in fact, we understand a broad 

range. What one company does and the weights that one company 

might assign to one factor like a credit score might be significantly 

different from another company. 

Of course, different States have different parameters. There is a 

wide variation. I think one State estimates a variance of credit 

score affecting a rate from 7 percent up to the high double digits. 

That indicates that companies use this one factor of credit scores 

in a way that—companies use them differently based on their proprietary or pricing formula. 

Medical expenses and the debt associated with medical expenses 

frequently is a problem for consumers. State law varies with respect to whether consumers can be penalized for that or what is 

the recourse the consumer might have in the event that consumer 

is penalized for medical debt. 

It is inaccurate to say that companies do not consider medical 

debt as part of a credit score. It is also inaccurate to say that all 

States allow medical debt to be exempted as an extraordinary life 

event. Some States do. Some States do not. 

Mr. MOORE OF KANSAS. Do either of the other witnesses have a 

comment? Mr. Snyder? 

Mr. SNYDER. Yes, sir. With regard to the latest point, we support 

the enactment of the National Conference of Insurance Legislators’ 

model, including extraordinary life circumstances, including the 

provision on use of serious injury or serious illness with the individual or family member. 

Mr. MOORE OF KANSAS. Thank you. 

Mr. WILSON. I think I would just add that even in States that 

have not adopted an NCOIL model or an NCOIL-like model, we 

still do not consider medically coded collection items in our scoring. 

Mr. MOORE OF KANSAS. Thank you, Mr. Chairman. I yield back 

my time. 

Chairman GUTIERREZ. The gentleman yields back the balance of 

his time. Congressman Lance, you are recognized for 5 minutes, 

sir. 

Mr. LANCE. Thank you, Mr. Chairman. Good morning to you all. 

22 

Commissioner McRaith, if credit-based insurance scores were not 

used by insurers as one factor out of many for setting premiums, 

what other factors, in your opinion, would be more heavily weighted and what would be the likely effect on rates? 

Mr. MCRAITH. Congressman, the availability of data to any one 

insurance company at this point is so expansive, it is impossible to 

determine exactly what or to conclude what factors would replace 

a credit score. Some companies are using all of the sub-components 

of a credit score right now for pricing and not relying solely upon 

a credit score in and of itself. 

What we expect is that eliminating one rating factor will shift 

costs. There are some people who might pay more. Others might 

pay less. When you affect the price of one person in a risk pool, you 

are going to also affect someone else in that same pool. 

Mr. LANCE. That is obviously my point, and whether that would 

be fair to others where the risk would be shifted is obviously a 

question of great concern. 

Mr. Snyder, do you have an opinion on that? 

Mr. SNYDER. I would agree with the comments of Director 

McRaith on the potential impact on people paying more as a result. 

Mr. LANCE. Mr. Snyder, could you move your microphone closer? 

Mr. SNYDER. Yes. I would just indicate my agreement with the 

comments Director McRaith just made, that if some people pay 

less, many more people will pay more. 

Mr. LANCE. From your experience, what might be those factors 

if we were to eliminate this factor? 

Mr. SNYDER. Well, in one sense it might force the industry to go 

back to larger classifications and rely more on those, such as territory and other factors which themselves were controversial. 

With the addition of credit-based insurance scores, you have 

added a degree of objectivity and individual tailoring that did not 

exist before, and it allows both not only accurate rating and underwriting of individuals but has improved availability in the market 

because the confidence companies have that they have the ability 

to price every risk and therefore, many more risks are being written in the voluntary market. 

Mr. LANCE. Credit scores are individual. I recognize a once-in-alifetime situation should be excluded. Credit scores are individual 

in a way that geographical territory is not and may be bitterly unfair to those who live within the territory, and actually in my judgment may be extremely harmful to those whom we are trying to 

help. 

Mr. Wilson, your thoughts? 

Mr. WILSON. That is certainly a possibility. There are only so 

many factors that have been demonstrated to have a correlation 

with expected loss costs, and insurance companies do try to use 

them as effectively as they can to write risks. 

Mr. LANCE. What would your view be on a risk based upon territory? 

Mr. WILSON. Territory has been demonstrated to be strongly indicative, but as you know, it is broad, and one of the benefits as 

we saw it for credit scoring is it was individual. 

Mr. LANCE. Yes. It is my observation that in several other areas, 

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23 

ately tried to pressure those. Fannie Mae and Freddie Mac certainly come to mind. 

I trust as we move forward on this issue that we do not engage 

in the type of behavior in which Congress was certainly guilty regarding that matter. 

I yield back the balance of my time. Thank you, Mr. Chairman. 

Chairman GUTIERREZ. The gentleman yields back the balance of 

his time. Congressman Hinojosa is recognized for 5 minutes. 

Mr. HINOJOSA. Thank you, Mr. Chairman. Chairman Gutierrez, 

I want to thank you for holding this important hearing on a very 

important issue, consumer credit. 

I commend my colleague, Congresswoman Mary Jo Kilroy, for introducing H.R. 3421, the Medical Debt Relief Act of 2009. The intent of her legislation is admirable. I agree with her that medical 

debt should be removed from credit reports 30 days after that debt 

has been repaid or settled, and that it not continue to hurt the 

credit rating of that individual, having gone through so many difficulties with sickness. 

I am concerned about one issue involving credit reporting agencies. They buy and sell information from virtually all adult residents in the United States. For a long time, we have been encouraging them to provide credit reports in languages other than 

English, especially Spanish. 

Mr. Chairman, I would ask that each credit reporting agency 

provide in writing their proposals to provide credit reports in languages other than English or that we at least have an opportunity 

to debate that. 

I would like to ask my question to Mr. Snyder. I am interested 

in legislation that would require that every adult American citizen 

21 years or older receive a free credit score on an annual basis. 

Would the American Insurance Association support such legislation? 

Mr. SNYDER. I think we would. We are interested in having both 

transparency in the process as well as accuracy in credit scoring. 

I have not checked with my other colleagues in that industry. Perhaps they have a view of that. I certainly think anything that 

makes the process more transparent as the Congress has done recently is something worthy of very serious consideration. 

Mr. HINOJOSA. I am glad to hear you say that. 

Mr. McRaith, do lenders or insurance lenders pay for the credit 

reports they obtain from the credit reporting agencies? 

Mr. MCRAITH. Insurance companies typically will contract with 

a vendor that will provide or develop the insurance score on which 

the underwriting decisions and pricing are determined by that insurance company. 

Some of the larger companies have their own independent proprietary insurance scoring formula. 

Mr. HINOJOSA. I see. Mr. Chairman, with that, I yield back. 

Chairman GUTIERREZ. The gentleman yields back. Mr. Neugebauer? 

Mr. NEUGEBAUER. Thank you, Mr. Chairman. 

I want to go back to one of the things that seems to be a common 

theme, and I do not want to put words in people’s mouth, but that 

the credit scores are used in part of the underwriting process. 

24 

What is not standardized is some companies put more weight on 

that credit score than others. 

If I am a company and I am competing for business, if I am overly penalizing people for their credit scores and using that as a 

higher rate, I am probably losing business because I would say I 

would be pricing myself out of the market. 

Is that a reasonable assumption? 

Mr. SNYDER. Yes, sir; that is. 

Mr. NEUGEBAUER. Basically, the checks and balances of how that 

information is being used is in the marketplace today; right? 

Mr. SNYDER. Yes, there are many checks and balances in the 

marketplace, and the additional check and balance of detailed regulation at the State level. 

Mr. MCRAITH. I would add, Congressman, that the companies 

pursued the profitable risks, and if in fact credit-based insurance 

scores identify prospectively less profitable risks, the pricing might 

be geared towards reducing the likelihood of that less profitable 

risk from enrolling with that company. 

Mr. NEUGEBAUER. Which is probably prudent business, wouldn’t 

you say? 

Mr. MCRAITH. I would say that is the business judgment of the 

company; absolutely. 

Mr. NEUGEBAUER. What we want is these companies—I do not 

want to do business with an insurance company that is broke. Do 

you? 

Mr. MCRAITH. No, that is exactly right. We want financially 

strong companies able to deliver on the promises they make to consumers. 

Mr. NEUGEBAUER. I think one of my colleagues asked the question and I want to rephrase it just a little bit, is it fair to say that 

because of the underwriting tools, credit report being one of them, 

and other information, that people can actually effectively lower 

their insurance costs by good behavior? 

Mr. SNYDER. Yes, absolutely. The system very much rewards that 

behavior, not only on the road but in terms of responsible management of credit. 

Mr. NEUGEBAUER. Mr. Wilson, any reflection on that? 

Mr. WILSON. I would agree. You do have the opportunity to modify your profile, your risk profile, and therefore become a better 

risk. 

Mr. NEUGEBAUER. We have gotten into the business around here 

it seems like that we kind of are trying to get government to pick 

the winners and losers. We do it with legislation that hand-ties a 

process that works and rewards good behavior where people who 

pay their bills, drive safely, demonstrate certain characteristics 

that they are responsible, and they get to reap the benefit from 

that. 

It seems to me if we go in and sterilize that system, basically it 

becomes harder to determine who is the higher risk or the more 

profitable, so what happens is in order for a company to counteract 

that, I guess they just raise everybody’s rates. 

Would that be a fair assumption? 

Mr. MCRAITH. I think it would in fact pricing, Congressman. As 

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25 

ance companies, for example, offering insurance in neighborhoods 

where previously it would have been very difficult for them to price 

a homeowner policy. 

Having said that, actuarial justification is not in and of itself a 

sufficient reason to allow a rating factor to be used. 

In our examples over time, I will not bore you with it right now, 

actuarially justified factors that Congress or the States later determine should be prohibited. 

Mr. NEUGEBAUER. Should we be careful as we go down that 

road? 

Mr. MCRAITH. I think those are the public policy questions, of 

course, that Congress and the State legislatures answer every day. 

Mr. NEUGEBAUER. One of the things that I think about is I know 

there are different insurance products, for example, they ask you 

if you are a smoker. If you are not a smoker, there is a discount. 

There must be a reason actuarially that non-smokers get a discount. 

Would you agree with that? 

Mr. MCRAITH. Absolutely. The one example that I recall, Congressman, is several years ago, there were life insurance companies 

charging higher premiums to African-American enrollees because 

their life expectancy was shorter. The country and States determined that was inappropriate. 

I am not disagreeing with you. I think we want companies to be 

accurately pricing their products and financially strong. All I am 

pointing out is that actuarial justification in and of itself is not sufficient. 

Chairman GUTIERREZ. The time of the gentleman has expired. 

The gentlelady from New York is recognized for 5 minutes. 

Mrs. MCCARTHY OF NEW YORK. Thank you, Mr. Chairman. I 

thank you for having this hearing. I thank the panelists for their 

information. 

We know that some individuals do not have traditional credit reports. Some have alternative reports that are created by items such 

as rental payments and utilities, to create a credit history. Those 

kinds of reports typically are different than a traditional credit report in underwriting. 

For all of you, the current economic downturn has resulted in financial struggles for many of our constituents. As a result, they 

have seen their credit reports negatively impacted, even though 

they have had a good history from the past. 

How could this affect an individual’s ability to renew their insurance? I will throw that out to all of you. 

Mr. SNYDER. Thank you. Lending scores and insurance scores are 

very different. We have included some materials in our statement 

from FICO, which is one of the major modelers, indicating they 

have not seen an overall pattern of insurance scores declining. 

It is because of the different make-up of the scores. You have 

heard no doubt and read newspaper articles about lending scores. 

That has not been the case with insurance scores. They continue 

to be very stable over time, and they continue to reflect differences 

in risk. 

Insurers also have the ability to adjust their rating tier so that 

if you have an overall decline in the economy, you can understand 

26 

that across-the-board, so you have not had the impact on insurance 

scores that has occurred with regard to lending scores that you 

might otherwise assume would be occurring. 

Mrs. MCCARTHY OF NEW YORK. Just a follow-up question, so 

many homes have actually de-valued in their worth, and yet they 

are continuing with basically—I just thought of this when you were 

speaking. My homeowner’s insurance basically has gone up even 

though my home value has gone down. Are you seeing a trend like 

that across the Nation? 

Mr. MCRAITH. Congresswoman, we have seen homeowner insurance premiums increase. We perceive that not to be a reflection of 

the value of the house necessarily, more a reflection of the economic challenges. 

Investment portfolios of insurance companies, of course, did not 

provide the return they had been seeing over the years, and as a 

result, we expect premiums increased for many companies to reflect the decrease in portfolio return. 

Mrs. MCCARTHY OF NEW YORK. It has nothing to do with basically—to rebuild the home would be lower, but you are still paying 

a higher price. 

Mr. MCRAITH. Right. In fact, one question that I have heard with 

some frequency is, since construction costs are less now because 

construction workers are generally less expensive, why is the cost 

of my premium not declining as well? 

Again, the premiums are not necessarily tied to the value of the 

home or the cost of replacing that home. They are connected with 

that but not directly and solely connected with that. 

I would also add in terms of the question that you asked Mr. 

Snyder earlier, we do have that concern and have explored that 

question. For example, many credit card limits decreased through 

no act or fault of the consumer as a result of our recent financial 

challenges nationally. That affects the credit ratio for that individual consumer. 

Does that then affect the insurance score? That remains to be an 

open question and we have heard conclusions on both sides of that 

question. 

However, our effort, as I mentioned earlier, is to provide Congress with more fact-based information and reply to some of those 

questions, and we expect to have that survey done by the end of 

this year. 

Mrs. MCCARTHY OF NEW YORK. Thank you. Mr. Wilson? 

Mr. WILSON. Yes. I guess I would note that we also track information on our insurance applicants’ scores, and while we have seen 

some adverse changes as an example, a slight increase in delinquency rates and in some cases, as Mr. McRaith mentioned, a reduction in the limits on credit cards, we have also seen some positive changes. 

We have seen fewer inquiries, fewer recent account openings. We 

have also seen many consumers are actually paying down their revolving indebtedness. That, I think, has tempered the changes in 

the scores. 

Chairman GUTIERREZ. The time of the gentlelady has expired. 

Mr. Royce, you are recognized for 5 minutes, sir. 

Mr. ROYCE. Thank you, Mr. Chairman. 

27 

Instead of dealing in the abstract, I would like to focus on a few 

facts here. I come from California. In California, we continually 

rank among the highest rates for auto insurance in the country. A 

study just came out, again, California is in the top five, as we always are. Despite the fact that many safe drivers in California 

have decades of driving experience and clean driving records, they 

are also paying the highest insurance premiums in the Nation. 

My home State also happens to ban the use of credit scores for 

insurance. I was going to ask Mr. Snyder, is there a correlation between the fact that the insurance rates are so high and the banning of credit scores? 

Mr. SNYDER. We think there is. California has an unique and incredibly restricted rating system. According to economist David 

Appel, that cost California consumers $10 billion throughout the 

1990’s because loss costs, which we were pleased to participate in, 

for example, through highway safety, anti-fraud measures declined 

dramatically. 

The entire State played a role in that, and we were there to support it. 

Because the regulatory system was so rigid, companies were not 

able to respond as rapidly as they would in a free market to those 

declining costs, and the difference calculated just during one decade was the cost to California consumers of about $10 billion. 

We think there are huge subsidies within the system as a result 

of that strict rating regime that is in place. We also think it would 

fail any cost/benefit analysis and is grossly inefficient—a totally 

unique system with major negatives about it. 

Mr. ROYCE. It seems that the essence of this issue when you get 

down to it is whether or not a credit score has a predictive value 

when it comes to auto insurance scoring. I know study after study, 

and I think you mentioned the FTC study, they all conclude that 

a credit score has a strong predictive value and is a net benefit to 

the market. 

The result, I think, in that study, said the use of credit scores 

produce a situation where 59 percent of policyholders pay less as 

a result of that use. 

What happens when we remove this risk indicator? Is there a 

viable alternative out there to credit scores that you can think of 

that is as good? 

Mr. SNYDER. Right now, no. That was actually confirmed in the 

FTC study. The fear would be if you eliminated an individual objective factor like credit scores, they would be forced to go back to 

larger risk classifications or more reliance on larger risk classifications in the past, such as territory and other factors like that. 

I think what the FTC concluded is there was not another factor 

out there that was able to assure the same predictiveness as we 

currently have. 

I think that would be the fear, that we would have a system less 

accurate, actually less fair, and one relying on larger classifications 

rather than on the more individual risk classification. 

Mr. ROYCE. The FTC concludes that risk-based pricing benefits 

the majority of market participants. The observation I would make 

is that if there is a flaw in the marketplace in terms of anti-competitive pricing or the availability of insurance, we should look at 

28 

the fragmented antiquated regulatory model that exists in the 

United States that is unlike that anywhere else in the world, 

where we have this regulatory model overseeing the industry 

where we have 50 different markets instead of one national market, and I think recent estimates put that cost of the fragmented 

State-based system at $14 billion in higher premiums every year 

for consumers. 

If we could focus instead on enhancing competition, instead of 

unnecessarily limiting tools in the marketplace, it would be much 

better for the consumer, although I am sure many of our elected 

State insurance commissioners would have to find other things to 

focus on. 

It would certainly move us into a national market for insurance. 

It would certainly not only reduce the costs but produce a much 

more competitive industry, especially when you look at what Europe is doing right now as it goes to one market for all of Europe 

for insurance. 

Chairman GUTIERREZ. The time of the gentleman has expired. 

Mr. ROYCE. Thank you, Mr. Chairman. 

Chairman GUTIERREZ. You are very welcome. Congressman Baca, 

you are recognized for 5 minutes, sir. 

Mr. BACA. Thank you very much, Mr. Chairman. I thank you and 

the ranking member for your leadership on this issue which is important to a lot of us, especially as we represent diverse groups of 

individuals within our communities. 

I am concerned from both aspects that it impacts everyone but 

also how it impacts many minorities as we look at the credit rating. 

I heard a lot of you talk about it when Congressman Moore said 

we needed more financial literacy. 

The problem is on this literacy, where does it go and what kind 

of outreach are we doing in making sure that when we target it, 

the different diversities, that they are actually aware of the credit 

scores that they are going to get, and if they get it, when do they 

know they are getting a credit score? 

Right now, as we look at its impact, it is not only on the automobile but also as we look at the health bill that is coming before 

us. 

Maybe any one of you three can explain that, and since no one 

has clearly explained the casual connection between credit scores 

and insurance risks, are customers at least made aware of the 

credit scores that are used when they purchase that coverage? 

Is there an adjustment during any period of time to their rates 

they are getting because they may have improved or something 

may not have been accurate during that period of time that the 

credit report went out, but yet you underwrote your insurance policy or health coverage, which means they are paying a higher premium. 

Another question: I am going to try to get all my questions in all 

at once. What effect does it have on our seniors? A lot of our seniors right now, when you look at their credit ratings, a lot of them 

get their checks once a month, there are adjustments in there, and 

then the ratings are there. 

Do we have any studies on the impact on a lot of our seniors? 

What are their rates compared to someone elses? 

29 

How are we doing it in terms of geographical areas on the credit 

scores? People who live within certain geographical areas get a 

higher score versus individuals who do not live in those geographical areas, based on the high risk? Therefore, their premiums 

are a lot higher, yet their income does not change, but they are 

being impacted. 

When does the insurance company review the credit scores, after 

the initial purpose, or do they make adjustments in the ratings at 

one period or another, so this way the rates can also be lowered? 

If there are two individuals who get a credit score, husband and 

wife, say one or the other gets a higher score than the other. How 

is it underwritten, based on whom? The higher score or the lower 

score, or is there an adjustment in between? 

All three of you can tackle all of these questions. 

Mr. MCRAITH. I will do my best to answer them quickly. Congressman, first of all, in terms of financial literacy, the States are 

committed to improving the literacy of consumers. 

Mr. BACA. States are committed, but do we know that they are 

really doing that? In a lot of minority areas, do they really know 

they have gotten a credit score based on their automobile or their 

health bill that will be coming up right now because we are saying 

we want to make it affordable, but ‘‘affordable’’ means you have to 

have a good score as well. If you do not have a good score, you are 

going to be paying a higher premium on that health coverage. 

Mr. MCRAITH. We absolutely have to do it better than we are 

doing it right now. I think this hearing illustrates all the reasons 

for that. 

I would point out I am not sure knowledge of the impact of a 

credit score affects whether someone is able to pay their medical 

expenses. Literacy is one component. It is not necessarily going to 

put the dollars in someone’s pocket to help them pay during a difficult time in their lives. 

Mr. BACA. No, but if a score is given, that means their premiums 

are higher. That makes a big difference based on if you have a 

fixed income as a senior, that impacts me, because today I have to 

decide whether I pay for groceries, pay my rent or pay for my insurance policy. 

Mr. MCRAITH. That is exactly right. That gets to your last question, the impact on seniors and other people with fixed incomes. We 

also hear from the disabled community, of course. They are on 

fixed incomes. 

Under Illinois law and under many States’ laws, individuals who 

do not have credit records are to be treated as ‘‘neutral.’’ What exactly ‘‘neutral’’ means varies from State to State. It largely means 

they do not get a benefit of a great credit history and they do not 

get penalized for having a negative credit history. 

By and large, that is how people on fixed incomes are treated. 

Mr. BACA. But that is not a standardized process or procedure 

that is used in other States. It is only in Illinois. 

Mr. MCRAITH. No, that is generally the practice across the country, not in every State, but it is generally the practice. 

In terms of geography and credit scores, I believe different studies have shown that different parts of your district, for example, 

30 

will generally have higher credit scores. Again, we have heard 

today higher credit scores result in lower insurance premiums. 

Chairman GUTIERREZ. The time of the gentleman has expired. 

Congressman Hensarling, you are recognized for 5 minutes, sir. 

Mr. HENSARLING. That was quick, Mr. Chairman. 

Chairman GUTIERREZ. A triangle has three corners. Five minutes 

has those many seconds, unfortunately. 

Mr. HENSARLING. Thank you, Mr. Chairman. I did not know we 

would be getting a geometry lesson here as well. 

I will beg the forgiveness of our witnesses. I missed your testimony trying to straddle two meetings. I am one of the Republican 

appointees to the President’s Fiscal Responsibility Commission. We 

have our work cut out for us. I was attending some of those proceedings. We may cover some ground that has already been covered 

and I apologize to you about that. 

I guess the central question I have with regards to the use of 

credit scores in insurance ratings, clearly, there are those who feel 

this is predictive. Otherwise, I do not understand why they would 

be using it, but particularly as I look at the incredibly high unemployment rate that remains in our country, how important is it to 

small insurers and small businesses that they be able to use creditbased insurance scores? 

In your dealings in the marketplace, again, your observation, 

how important is it to small businesses and small insurers? 

Why don’t we start with you, Mr. Snyder? 

Mr. SNYDER. I think it is very important. I think the use of credit-based insurance scores in the personal lines of insurance has 

proven to be very important for the market. It has allowed a degree 

of objective and individually tailored decision making that more accurately assesses risk than was possible before. 

The risk assessment is good in and of itself because how else 

would you price an insurance product but to reflect the risk within 

that product, and the danger of moving away from that, I think we 

have seen perhaps too much of in other sectors. 

Secondly, it has had an overall positive availability impact on the 

market for personal lines. That would be true if you are an individual. 

In commercial lines, credit information has long been used because everyone understands that one of the first things that is reduced is maintenance of critical equipment and other things like 

that, and that leads to safety issues, which in turn leads to increased insurance risks. 

I think it is important up and down the line in terms of assessing 

for risk and then pricing for risk. 

Mr. HENSARLING. How many years of history do we have now to 

observe as far as the use of credit scores in our credit-based insurance scores? 

Mr. SNYDER. In personal lines, about 15 years or so. 

Mr. MCRAITH. 1993. 

Mr. HENSARLING. Thank you. It is a fairly substantial time period. Mr. McRaith? 

Mr. MCRAITH. Just to build on Mr. Snyder’s comment, Illinois 

has more insurance companies competing for personal lines insurance than any other State. We have seen some of those smaller 

31 

companies able to compete because of their ability to accurately 

price. They state the reason they can accurately price is the creditbased insurance scores. 

Mr. HENSARLING. I personally have not seen it, has not come 

across my desk, have there been any studies that would indicate 

kind of the overall economic impact that is derived from creditbased insurance scores? Is there something like that out there that 

has crossed your desks? 

Mr. SNYDER. There is some data. Professor Powell may have 

some data which we can provide to you. He testified previously before Congress last session. 

We have a report that proves the reverse, which is we have very 

good data about California where credit-based insurance scores 

have not been permitted, that loss costs went down dramatically, 

but because of the absence of free market pricing, the prices that 

were actually charged in the market lagged the downturn in loss 

costs, because companies simply could not go through the very 

elaborate process that you have to go through there. 

I think there is strong evidence— 

Mr. HENSARLING. What happened in California? 

Mr. SNYDER. What happened in California is that you have a situation with massive cross subsidies, a very inefficient system with 

a huge overhead cost, and for many years and I think now, overall 

prices that would be lower if the free market were permitted. 

Mr. HENSARLING. If we were to somehow restrict the use of credit 

scores in insurance pricing, what you see in California, would you 

predict might spread nationwide? 

Mr. SNYDER. I think that is right. 

Chairman GUTIERREZ. The time of the gentleman has expired. 

Congresswoman Waters is recognized for 5 minutes. 

Ms. WATERS. Thank you very much, Mr. Chairman. I was just 

going over some information with my staff. I want to thank you for 

holding this hearing. I wish that we could get at some of the information that is so desperately needed to try and understand how 

decisions are made to determine insurance rates, and what is taken 

into consideration. 

From everything that I can gather, there may be 500 different 

variables that are taken into consideration. We just do not know 

and understand what that is all about. 

I am told that all kinds of studies are done, including studies 

about your Zodiac sign. 

Let me just raise the question: How many variables are taken 

into consideration by members of the Association for determining 

insurance rates? I will address that question to Mr. David Snyder, 

who is the vice president and associate general counsel for the 

American Insurance Association. 

Mr. SNYDER. Thank you, Ms. Waters. That will differ from insurer to insurer. There are dozens of variables that are considered. 

Many different credit variables, as well as other variables, such as 

prior loss experience. In automobile insurance, make and model of 

car. In homeowner’s insurance, prior loss experience, proximity to 

a fire station, and on and on. 

32 

The whole effort is to try to combine these factors, to be as accurate as possible in predicting future risk of loss and therefore, pricing for it. 

Ms. WATERS. Do you think it would be helpful to set some standards so that people can have a good understanding about what is 

taken into consideration no matter what insurance company you go 

to, rather than having all of these variables that are not identified 

in any insurance policy that I know of, to tell people how the decision was made? 

Should we have some standards? 

Mr. SNYDER. There are general legal standards, but to encourage 

competition in the market, the models and the variables are all 

subject to insurance commissioner review on a State by State basis. 

That is the system that has been followed, general legal standards, 

and then allowing the companies to innovate and experiment, and 

subject to both legal standards and actuarial standards. 

Ms. WATERS. Have members of your Association done their own 

studies? There is not one, two, three, four or five studies every year 

done by the Association or do they all do different studies? 

Mr. SNYDER. For anti-trust reasons, the Association cannot discuss how individual companies do their business. I am very aware 

they are constantly reviewing their data, constantly reviewing their 

factors, constantly subject to insurance commissioner review on 

their models and programs and the factors used in them. 

Ms. WATERS. What is the difference between defending the fact 

that they all use variables unknown and different for competitive 

purposes and the question that I just asked about the studies? Do 

you know something about that? You can talk about that but you 

cannot talk about the studies. What is the difference? 

Mr. SNYDER. I can talk about generally from published reports 

what the companies have said in the media, but they do not share 

with us— 

Ms. WATERS. Any of the companies using the Zodiac study? 

Mr. SNYDER. Excuse me? 

Ms. WATERS. Are any of the companies in your Association using 

the Zodiac study? 

Mr. SNYDER. Using which study, ma’am? I am sorry. 

Ms. WATERS. Zodiac. 

Mr. SNYDER. Zodiac study? 

Ms. WATERS. Yes. Are you aware of that? 

Mr. SNYDER. I am not aware of it. 

Ms. WATERS. Never heard of it? 

Mr. SNYDER. I have not. 

Ms. WATERS. Thank you. Do you believe that given the way decisions are made by insurance companies to charge or to not insure— 

is the Association satisfied that your companies in the Association 

are acting in the best interest of the consumers? 

Mr. SNYDER. Yes, so far as we know. 

Ms. WATERS. Do you know of any changes that you would recommend that should be taking place to have them do a better job 

of acting on behalf of the consumers? 

Mr. SNYDER. The answer is I cannot recommend to them how 

they do their business. 

Ms. WATERS. Can you recommend to us? 

33 

Mr. SNYDER. What we do support is reasonable regulation and 

their ability to innovate and compete in the market. 

Ms. WATERS. Mr. McRaith, you represent the National Association of Insurance Commissioners. You must hear from commissioners all over the country about the problems they have with 

whatever regulation they may be responsible for in their States. 

Have you heard any of your commissioners complaining about 

loops or gaps in their oversight responsibilities— 

Chairman GUTIERREZ. The time of the gentlelady has expired. 

Ms. WATERS. —that could be closed? 

Chairman GUTIERREZ. Answer the question. Ten seconds, please, 

Mr. McRaith. 

Mr. MCRAITH. As you would expect, Congresswoman, there is a 

wide variety of viewpoints among regulators across the country on 

the use of credit-based insurance scores. 

Chairman GUTIERREZ. Mr. Green, you are recognized for 5 minutes, sir. 

Mr. GREEN. Thank you, Mr. Chairman. Thank you to the witnesses. 

Let’s first review some intelligence that I have received. The intelligence indicates that credit-based insurance scores are not, ‘‘no-t,’’ held out as being predictive of an individual’s likelihood to 

have an automobile accident or experience damage to their home. 

True or false? 

Mr. WILSON. Right. Scores are— 

Mr. GREEN. If you would, just true or false. If this is true, would 

you kindly raise your hand, please? 

[No response.] 

Mr. GREEN. Nobody agrees this is true? 

Mr. MCRAITH. I am sorry. The question is? 

Mr. GREEN. I will read it again. Credit-based insurance scores 

are not, ‘‘n-o-t,’’ held out as being predictive of an individual’s likelihood to have an automobile accident or experience damage to 

their home. Is this true? 

Mr. SNYDER. They are predictive of making a claim. 

Mr. GREEN. Is it true that they do not predict that a person is 

likely to have an accident? 

Mr. WILSON. Models perform for groups of individuals rather 

than for individuals. 

Mr. GREEN. Do you know whether it is predictive of whether a 

person will have an accident? I am not hearing you say yes or no. 

I do not know. 

Mr. SNYDER. It is predictive of having an accident and making 

a claim; yes. 

Mr. GREEN. A credit score can predict whether a person will have 

an accident? 

Mr. MCRAITH. It is my understanding, Congressman, that a credit score indicates a likelihood of submitting a claim. 

Mr. GREEN. I am not there yet. I am talking about the likelihood 

of having an accident, which I thought was going to be the easy 

question, by the way. 

Let me ask again: Will a credit score predict whether a person 

will have an accident? 

34 

Mr. MCRAITH. I have not seen any study that indicates that to 

be true. 

Mr. GREEN. Your answer is yes or no? 

Mr. MCRAITH. I would love to answer your question, Congressman. I simply do not know whether that is true or not. 

Mr. GREEN. You do not know whether a credit score will predict 

the likelihood of having an accident? 

Mr. MCRAITH. You have probably read— 

Mr. GREEN. Let’s move on. Let’s go to Mr. Snyder. Mr. Snyder, 

do you know the answer? Is it yes, no, or you do not know? 

Mr. SNYDER. My answer would be the same as Director McRaith, 

which is the studies indicate the greater likelihood of submitting 

a claim. 

Mr. GREEN. I am not there yet. I want to talk about accidents. 

Do credit scores predict whether people will have accidents? 

Mr. SNYDER. They predict insurance risks including accidents 

and claims. 

Mr. GREEN. They predict accidents? Okay. Let’s go to Mr. Wilson. 

Do they predict accidents, Mr. Wilson? 

Mr. WILSON. They are correlated with accidents. 

Mr. GREEN. Credit scores will predict whether a person is going 

to have an accident? 

Mr. SNYDER. It measures— 

Mr. GREEN. Excuse me. Mr. Wilson has the floor right now. I am 

sorry. 

Mr. WILSON. I would agree it measures the likelihood. Models 

perform for groups of individuals. 

Mr. GREEN. Credit scores predict the likelihood of a person having an accident? That seems to be where you all are. 

Mr. MCRAITH. I cannot agree with that. I do not know that is 

true. What I know is it indicates the likelihood of a claim to an insurance company. 

Mr. GREEN. If this is what you believe, I see what the problem 

is. This is a real problem for us. If you believe that a credit score 

is likely to predict that a person is going to have an accident, what 

is the correlation between the credit score and the likelihood of an 

accident? 

My thought was you would all say no, it is not likely to predict 

this, that it is likely to predict whether a person will file a claim. 

That is what I thought you would say. Now you have completely 

revamped my thinking, given that you seem to think that a credit 

score can predict whether a person will have an accident. 

Mr. Wilson, I will give you one more chance. Are you sure that 

a credit score can predict the likelihood of having an accident? 

Mr. WILSON. For an individual? 

Mr. GREEN. Yes. 

Mr. WILSON. Again, models perform for— 

Mr. GREEN. Is your answer yes or no? Sometimes when you finish, I do not know whether you said yes or no. Maybe your answer 

is, ‘‘I do not know.’’ 

Mr. WILSON. I do not think I know. 

Mr. GREEN. Okay. You do not know. Let’s go to our next expert, 

Mr. Snyder. Again? 

35 

Mr. SNYDER. It predicts the likelihood of having a claim and you 

are not going to have a claim for certain types of auto policies unless you are in an accident. 

Mr. GREEN. Does it predict the likelihood of having an accident, 

is the question. 

Mr. SNYDER. It predicts a likelihood of accident involvement. 

Mr. GREEN. You are not going to answer the question. It is a 

simple question. Is it likely to predict that you are going to have 

an accident? 

Here is what my intelligence tells me. It is likely to predict that 

you will file a claim. That is what it is likely to predict. That seems 

kind of reasonable when you think about it. If that is the case and 

it predicts whether you are likely to file a claim, then the question 

becomes this, or maybe the statement is this, that the fact that one 

is likely to use one’s credit—pardon me—one’s insurance, if you 

have an accident, then that says to me you have a lot of people who 

are poor, who can barely pay for their insurance. They have an accident. I can tell you without having a study that they are likely 

to use their insurance, and they are likely to want to take advantage of something they paid for. 

Chairman GUTIERREZ. The time of the gentleman has expired. 

Mr. GREEN. Thank you, Mr. Chairman. I yield back. 

Chairman GUTIERREZ. Mr. Cleaver, you are recognized for 5 minutes, sir. 

Mr. CLEAVER. Thank you, Mr. Chairman. 

I am interested in the extraordinary life circumstances and 

whether or not the three of you agree that extraordinary life circumstances should be taken into consideration with regard to an 

individual’s credit score. 

Mr. MCRAITH. Yes. 

Mr. WILSON. Yes. 

Mr. CLEAVER. It does not exist. Who is taking that into consideration? 

Mr. MCRAITH. Certain State laws require that a company, an insurance company, consider an extraordinary life event if the insured, the policyholder, reports and submits that to the insurance 

company. 

Mr. CLEAVER. California and Hawaii. 

Mr. MCRAITH. California and Hawaii prohibit the use of creditbased insurance scores. Some States, like Illinois, for example, require that the insurance company review and consider an extraordinary life event. Some States require that the insurance company 

actually make a reasonable exception to the rate due to an extraordinary life circumstance. 

Mr. CLEAVER. That is where I am. That is where I am going. 

Mr. SNYDER. Sir, the National Conference of Insurance Legislators recently amended its law to include specific provisions on extraordinary life circumstances. This was done fairly recently. Some 

States have already enacted it this past legislative session and it 

is something we support for all States. 

Mr. CLEAVER. All of you support that? 

Mr. WILSON. Yes. 

36 

Mr. CLEAVER. I have a friend who is in the hospital now suffering from cancer. Last summer, he ate a cheeseburger. I have 

concluded that cheeseburgers cause cancer. 

I know someone who had two automobile accidents, so therefore, 

automobile accidents cause bad credit. 

Point out the illogic in that. Either one, the hamburgers or the 

accidents. 

Mr. MCRAITH. Congressman, as a Chicago Cubs fan, I think it 

is true the Cubs have not won the World Series since Theodore 

Roosevelt was President. Until he comes back, we are not expecting 

a victory. 

Mr. CLEAVER. Yes. I agree. We are in the age of deniers. We will 

deny everything. 

On a credit score, and this goes back to Mr. Watt’s questions earlier, in my hometown, Kansas City, Missouri, some of us protested 

years ago because the newspaper, in the real estate section, in 

identifying the location, would always say, ‘‘East of Trust.’’ 

Trust in Kansas City has been unfortunately and painfully the 

Mason-Dixon line separating the African-American and Latino 

communities from the majority community. They eventually 

stopped doing that because they realized that they were sending 

subliminal information, maybe not even so subliminal. 

On a credit score, is not the address of the individual listed? 

Mr. WILSON. It is on the credit report. It is not used in scoring. 

Mr. CLEAVER. You just made the point I am trying to make. It 

is on the report. Mr. Watt was saying can that be a proxy, a substitute. I am saying if it is on the score, is it not also logical that 

it gives some additional information about the individual? 

Mr. MCRAITH. Yes. 

Mr. CLEAVER. Thank you. Mr. Snyder? 

Mr. SNYDER. As the gentleman indicated, the address is not included in the score that we use. 

Mr. CLEAVER. Yes, I said that at the beginning. The gentleman 

said it, but I said that at the beginning. 

The question was and I apologize, is it not very likely that is 

some additional information that is being given about the individual, more than the numbers? 

Mr. WILSON. Many— 

Mr. CLEAVER. No, I want Mr. Snyder to answer, please. Excuse 

me. 

Mr. SNYDER. Certainly no demographic information. No other information than the number. 

Mr. CLEAVER. You just said the address is on there. 

Mr. SNYDER. I heard the gentleman say it was not. 

Mr. CLEAVER. It is not? That is unbelievable. You are saying— 

Chairman GUTIERREZ. The time of the gentleman has expired. 

Ms. Kilroy, you are recognized for 5 minutes. 

Ms. KILROY. Thank you, Mr. Chairman. 

Chairman GUTIERREZ. You are very welcome. 

Ms. KILROY. Thanks again to the witnesses for their input here 

this morning. 

I wanted to bring up an issue that a constituent and friend and 

actually former Member of Congress brought up to me, Robert 

Samansky, who spent a great deal of his personal time over the 

37 

last 6 months working with my staff and our committee staff to understand and analyze the way credit-based insurance scores are 

being used and explained to insurance consumers. 

He was not able to be here with us this morning. I am going to 

follow up, Mr. Wilson, with some written questions for you regarding his specific circumstances. I hope you will be able to provide me 

with some answers. Thank you for that. 

There is a disparity between his overall excellent credit record 

and his Choice Point credit-based insurance score. I have looked at 

his materials. I do not understand it. 

Could you explain to me how someone with an exemplary overall 

credit score could end up with a mediocre credit-based insurance 

score? 

Mr. WILSON. Sure. One of the key considerations is the target 

that is being modeled. A credit score for financial purposes is generally targeting the likelihood or the odds of someone going delinquent on a loan payment in the next 2 years. 

The bank has a pool of loans. They know who has gone delinquent and who has not gone delinquent. They model for that. The 

credit characteristics that are most correlated with loan delinquency come into that model. 

By contrast, an insurance company is going to look at loss ratio 

for a pool of policyholders. They will use the correlation between 

the credit factors and the observed loss ratio to produce a rank ordering. 

Because the target is different, the credit characteristics and 

their weights are different. 

Ms. KILROY. What kind of— 

Mr. MCRAITH. Congresswoman, to answer your question more directly, if your friend is older than a certain age, he is likely to see 

his premiums increase. A credit-based insurance score is not solely 

based on credit. There are many other factors that are considered 

as well, including the age of the driver. 

Ms. KILROY. When Mr. Wilson suggested earlier that age was not 

taken into account? 

Mr. WILSON. Age is not used in our scores. 

Ms. KILROY. It does come into play later on, is that what you are 

saying? 

Mr. WILSON. Yes. 

Ms. KILROY. The answer that he got from his insurance company 

was it was based on his credit score and they gave him some reason codes, again, I have to say I do not see the correlation. 

You mentioned earlier you wanted to be transparent and we 

want to get behind some of the rhetoric on credit-based insurance 

scores. I am still kind of stuck here. It is pretty opaque to me. 

There is a lot of rhetoric out there in terms of how this happens. 

Mr. MCRAITH. Yes, I would agree, Congresswoman. I would say 

it is possible that both sides can be right, that credit scores—creditbased insurance scores are predictive. It is also possible that they 

might have a disparate impact on racial and ethnic minorities. 

Both of those could be true. 

Ms. KILROY. You mentioned earlier, Mr. McRaith, about the large 

number of medical bankruptcies in this country, and that is cerVerDate Nov 24 2008 18:15 Oct 27, 2010 Jkt 058044 PO 00000 Frm 00043 Fmt 6633 Sfmt 6633 K:\DOCS\58044.TXT TERRIE
38 

tainly true. My bill is really not focused on that really significant 

problem. 

My bill is focused very narrowly on people who actually paid 

their medical debt. They might have had some confusion with the 

large number of bills. 

Let me give you another example of a lawyer in my community. 

Her daughter was in a significant accident. They life-flighted her 

to a hospital. She had a grocery bag full of bills as a result. 

She worked with her insurance company and paid everything off 

and never heard anything again until years later, about 5 years 

later, she went to get a loan to do an addition on her home and 

discovered her credit score was dinged because of a $100 co-pay on 

that medical life flight that they had never billed her for, that the 

municipality had never billed her for, but somehow it had gone to 

collection. That collection effort never came to her. 

Mr. MCRAITH. Those are real problems that people and families 

all over the country face every day. The States, I think, are trying 

to impose some requirement that insurance companies acknowledge that exceptional, extraordinary life event. 

Ms. KILROY. Even if it is not an exceptional, extraordinary life 

event, if somebody has paid their medical debt, do you think it is 

reasonable to have that disparaging comment removed from their 

credit score? 

Mr. MCRAITH. In my opinion, I think it is reasonable to have it 

removed. I think it is unreasonable for it to remain. 

Ms. KILROY. Thank you very much. 

Chairman GUTIERREZ. The time of the gentlelady has expired. 

I thank you all very, very much. We have a second panel, and 

I thank the first panel. I am being a little biased, I thank Mr. 

McRaith from Illinois. Thank you for all the fine work you do for 

the citizens of Illinois. Thank you for your testimony. 

We are going to go quickly to the second panel, in which we will 

continue to show the fairness of the Democrats. We had two industry people and one person for the consumer. Now we are going to 

have two industry and two consumer witnesses. 

Thank you. We would ask everybody to please end their conversations and have a seat. 

We are going to introduce these wonderful witnesses and go to 

our second panel. The second panel consists of four witnesses: Ms. 

Chi Chi Wu, staff attorney, National Consumer Law Center; Mr. 

Mark Rukavina, executive director, The Access Project; Mr. Stuart 

K. Pratt, president and CEO of Consumer Data Industry Association—and someone who knows his way around here; and Ms. Anne 

Fortney, partner, Hudson Cook LLP, another person who knows 

her way here. 

You are all welcome. We are going to give 5 minutes to Ms. Chi 

Chi Wu. Please, you have 5 minutes. 

STATEMENT OF CHI CHI WU, STAFF ATTORNEY, NATIONAL 

CONSUMER LAW CENTER 

Ms. WU. Mr. Chairman, Representative Hensarling, and members of the subcommittee, thank you very much for inviting me 

here today. I am testifying on behalf of the low-income clients of 

the National Consumer Law Center. And, Mr. Chairman, thank 

39 

you for holding this hearing about the use of credit reports in areas 

beyond lending, such as employment and insurance. And we also 

thank you for inviting us to speak about the need to fix a scrivener’s error in the Fair Credit Reporting Act. 

The use of credit reports in employment is a growing practice, 

with nearly half of employers involved in it. It’s a practice that is 

harmful and unfair to American workers. For that reason, we 

strongly support H.R. 3149, and we thank Chairman Gutierrez and 

Congressman Steve Cohen for introducing it. This bill would restrict the use of credit reports in employment to only those positions for which it is truly warranted, such as those requiring national security or FDIC-mandated clearance. 

We oppose the unfettered use of credit histories and support H.R. 

3149 for a number of reasons. The first and foremost is the profound absurdity of the practice. Considering credit histories in hiring creates a vicious Catch-22 for job applicants. A worker loses her 

job, and is likely to fall behind on her bills due to lack of income. 

She can’t rebuild her credit history if she doesn’t have a job, and 

she can’t get a job if she has bad credit. Commentators have called 

this a financial death spiral, as unemployment leads to worse credit records, which, in turn, make it harder for the worker to get a 

job. 

Second, the use of credit histories in hiring discriminates against 

African-American and Latino job applicants. We have heard how 

study after study has documented, as a group, these groups have 

lower credit scores, including the FTC study that did find the disparities in credit scoring. These are groups that have been disproportionately affected by predatory credit practices, such as the 

marketing of subprime mortgages and auto loans and, as a result, 

have suffered higher foreclosure rates, all of which have damaged 

their credit histories. 

The Equal Employment Opportunity Commission has expressed 

concerns over the use of credit histories in employment, and recently sued one company over the practice. 

Third, there is no evidence that credit history predicts job performance. The sole study on this issue has concluded there isn’t 

even a correlation. Even industry representatives have admitted, 

‘‘At this point we don’t have any research to show any statistical 

correlation between what’s in somebody’s credit report and their job 

performance, or likelihood to commit fraud.’’ 

Finally, as we have testified here before, the consumer reporting 

system suffers from high rates of inaccuracy, rates that are unacceptable for purposes as important as employment. And the estimates range from 3 percent, which is the industry estimate, to 12 

percent, from the FTC studies, to 37 percent in an online survey. 

In an environment with 10 percent unemployment, a 3 percent 

error rate in credit reports affects 6 million American workers, and 

it’s not acceptable. And, remember, a consumer who has an error 

in her credit report, and is able to fix it—which is very difficult— 

can reapply for credit. But very few employers are going to voluntarily hold up a hiring process for one or more months to allow an 

applicant to correct an error in the credit report. 

The issue at stake is whether workers are fairly judged on their 

ability to perform a job, or whether they’re discriminated against 

40 

because of their credit history. Oregon recently signed a bill into 

law restricting this practice. Other States are considering it, and 

Congress should do the same and pass H.R. 3149. 

The second issue I want to talk about is a scrivener’s error. The 

amendments of 2003 may have inadvertently deprived consumers 

of a 30-year-old pre-existing right they had to enforce the FCRA’s 

adverse action notice requirement. This is the notice given when 

credit or insurance or employment is denied, based on an unfavorable credit report. That was intended to limit the remedies for a 

totally new notice—the risk-based pricing notice—at 1681m(h). 

However, due to ambiguous drafting, a number of courts have interpreted this limitation to apply to the entirety of section 1681m 

of the FCRA, including the pre-existing adverse action notice. 

Congress can easily and should fix the scrivener’s error, because 

it was never part of the legislative bargain struck by FACTA. In 

fact, FACTA’s legislative history indicates that Congress had absolutely no intention of abolishing any private enforcement of the adverse action notice requirement, and an uncodified section specifically states that nothing in FACTA ‘‘shall be construed to affect 

any liability under section 616 or 617 of the Fair Credit Reporting 

Act’’—that is the private enforcement provisions—‘‘that existed on 

the day before the date of the enactment of this act.’’ 

And there is more evidence that Congress didn’t intentionally 

abolish the private enforcement. If it had done so, the banking and 

credit industry would have trumpeted that change. In fact, the industry has never made that claim, with only the American Banker 

noting that FACTA perhaps inadvertently eliminated the existing 

right of consumers and State officials to sue for violations of the 

adverse action provisions. Even 4 years later, in a hearing before 

the full committee, my fellow testifiers today declined to claim that 

FACTA had intentionally abolished this private remedy. 

Now, despite the clear legislative history, several dozen courts 

have, unfortunately, held that FACTA abolished this private remedy, depriving hundreds of consumers of their rights. We think 

that the documented cases are perhaps only the tip of the iceberg, 

so we assume that customers’ damage has— 

Chairman GUTIERREZ. The time of the gentlelady has expired. 

Ms. WU. We thank you for the opportunity to testify, and look 

forward to your questions. 

[The prepared statement of Ms. Wu can be found on page 186 of 

the appendix.] 

Chairman GUTIERREZ. Let me describe it once again. You get the 

green light at 5 minutes to start. When you get to the yellow light, 

you have a minute. Time yourself. 

Mr. Mark Rukavina, you are recognized for 5 minutes, sir. 

STATEMENT OF MARK RUKAVINA, EXECUTIVE DIRECTOR, THE 

ACCESS PROJECT 

Mr. RUKAVINA. Chairman Gutierrez, Ranking Member Hensarling, and members of the subcommittee, I thank you for the opportunity to address the committee today. My name is Mark 

Rukavina, and I am executive director of the Access Project. We 

work nationally on health care issues, and have since 1998. And 

41 

our research played an instrumental role in revealing the problem 

of medical debt. 

Medical debt is money owed for any type of medical service or 

product. That money may be owed directly to the provider of the 

service, or to an agent of the provider, such as a collection agency. 

In my testimony today, I would like to discuss the use of medical 

debt in assessing one’s creditworthiness. And more detailed information is found in my written testimony. 

First, some background on medical debt. Data gathered by the 

Commonwealth Fund found that during 2007, the most recent year 

for which data are available: 49 million working-aged Americans 

and 7 million elderly adults had medical debt or medical bills that 

they were paying off over time; and 28 million working-aged adults 

were contacted by collection agencies for medical bills. 

What makes medical bills unique? Few Americans understand 

that nearly two-thirds of the people who have medical debt had insurance at the time of the incident for which they owe money. 

While insurance provides protection, patients still have out-of-pocket obligations that they must pay. 

Americans are often confused by their health insurance coverage. 

One national study found that nearly 40 percent of Americans did 

not understand their medical bills or the explanation of benefits. 

They did not know what service they were supposed to pay for, the 

amount they owed, or whether that amount was correct. Nearly 

one-third let a medical bill go to collection, and one in six did not 

know whether they should pay their health care provider or their 

insurance company. 

Given this, it is not surprising when claims that are not promptly paid get sent to collection. The confusion regarding medical 

claims payment also carries over to credit reports. Many Americans 

mistakenly believe that unpaid medical bills have no influence over 

a credit score. The lack of clarity may stem from statements made 

by industry representatives. Testimony from the previous panel 

was an example of this. 

However, in recent testimony before this committee, a 

VantageScore representative said that their score does not factor 

medical debt into the calculation of a consumer’s credit score. Following that hearing, a letter was sent to the committee to clarify 

that this only applies when that medical debt is reported directly 

by a health care provider. They also clarified that they include all 

collection accounts, including those related to medical debt, when 

calculating a credit score. 

Given this, it is important to understand how most medical data 

appear on people’s reports. According to Experian, data provided 

directly by medical providers accounts for only 7/100ths of one percent of the data that they gather. TransUnion states that medical 

debts are not typically reported unless they become delinquent and 

are assigned to collections. 

So, here are the facts. Forty percent of Americans are confused 

by medical bills. Consumers and some credit scoring agencies appear confused as to whether medical data are used in calculating 

credit scores. Medical data can only drag down one’s score. I say 

this because medical debts that are paid off directly to providers 

aren’t used in calculating one’s score. Medical accounts are only inVerDate Nov 24 2008 18:15 Oct 27, 2010 Jkt 058044 PO 00000 Frm 00047 Fmt 6633 Sfmt 6633 K:\DOCS\58044.TXT TERRIE
42 

cluded on credit reports if they are deemed delinquent and sent to 

collection. This system is stacked against consumers, and penalizes 

those who experience illness. 

Even when proper action is taken, and one pays off a medical 

bill, the Fair Credit Reporting Act allows for this bill to remain on 

a person’s report for up to 7 years. This leads me to question the 

predicted value of medical accounts, which has also been questioned by some of those in the financial service industry. Some 

lenders disregard them when reviewing loan applications. 

A study published in the Federal Reserve Bulletin found that 

nearly one-third of Americans with a credit file have a collection 

account on their credit report. The study found that more than half 

of the accounts in collection are medical accounts. It went on to 

state that, ‘‘some credit evaluators report that they remove collection accounts related to medical services from credit evaluations because such accounts often involve disputes with insurance companies over liability for the accounts or because the account may not 

indicate future performance on loans.’’ It is estimated that in 2008, Americans spent $277 billion in outof-pocket costs. This resulted from millions of invoiced medical 

bills. Millions of Americans had bills sent to collection as the result 

of a lengthy insurance claim adjudication process or confusion due 

to numerous bills generated from one visit to a hospital. Those who 

paid their bills in full are often very surprised when they learn 

that despite such actions, the bills continue to plague them and peg 

them as poor credit risks. 

Such data errors harm consumers, and these inaccuracies in 

credit reports slow America’s economic recovery. H.R. 3421 addresses this problem, it corrects these errors on credit reports. Specifically, it would require— 

Chairman GUTIERREZ. The time of the gentleman has expired. 

Mr. RUKAVINA. —that only those medical accounts that have 

been paid or fully settled be removed from a credit report within 

a certain period of time. 

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

137 of the appendix.] 

Chairman GUTIERREZ. Thank you. 

Mr. RUKAVINA. Thank you. 

Chairman GUTIERREZ. Mr. Pratt, you are recognized for 5 minutes. 

STATEMENT OF STUART K. PRATT, PRESIDENT AND CEO, 

CONSUMER DATA INDUSTRY ASSOCIATION 

Mr. PRATT. Chairman Gutierrez, Ranking Member Hensarling, 

and members of the subcommittee, thank you for this opportunity 

to testify. I will highlight just a few points in my oral remarks. 

First, preserving a full and complete credit history is imperative. 

A central pillar of the credit reporting system is that it is full-file. 

And this means the database contains both positive and negative 

information about a consumer’s management of his or her debts. 

The FCRA balances this fundamental idea that all accurate and 

predictive data is available for risk management, with the requirement that data that is considered adverse be deleted, generally, 

within 7 years. 

43 

Congress recognized that a system that allows for the accumulation of payment history spanning decades is inherently fair for consumers. Because there is a positive payment history, any adverse 

data resulting from hardship or even mismanagement is set into 

this context. Credit reports are the bridge of data for us, as consumers, in an impersonal marketplace. Credit reports tell our 

story, a story of hard work, good values, and even times of trial. 

Credit reports are the basis for building fair and unbiased risk 

management tools, such as credit scores. Credit scores remove the 

risk of bias and mere opinion. Race and gender, for example, are 

no longer barriers to accessing loans and other services. 

It is for these reasons that we remain very concerned with H.R. 

3149’s proposal that the 7-year period for reporting paid medical 

debts reported by collection agencies be changed to a 30-day period. 

Consider the following: Maintaining stability of the system of 

data is essential. We all understand, better than ever, the importance of safe and sound underwriting. Removing accurate predictive data is not the right step. It’s not the right direction. 

Some may misunderstand the nature of the 7-year period. It does 

not begin on the date of the final payment or settlement. This 

seven-year period is running throughout the period of time that the 

account is on the file prior to payment. 

Data is regularly evaluated for predictive qualities. Prematurely 

removing even a paid debt which was delinquent removes even the 

possibility of considering how these data help ensure fair and also 

safe and sound decisions. We support the FCRA’s current approach 

to adverse data. We urge the committee to consult with users of 

data about the consequences of deleting any data, since it isn’t 

merely an issue for the consumer reporting agency, but ultimately 

it’s an issue for users who manage risk. 

Let me now turn to the uses of credit reports for employment. 

While credit scores are not provided by our members for employment purposes, credit reports are used, and this permissible purpose should be maintained. H.R. 3149 proposes to place a significant limitation on the use of credit reports. We understand the desire to ensure consumers are getting jobs they need during this period of high unemployment. But it is our view that credit histories 

do not serve as an impediment. 

Following are some important points to consider: First, employers’ use of any criterion for employment is highly regulated. Employers must determine whether or not the use of a credit history 

is appropriate for a given position. The FCRA, in fact, requires the 

employer to certify that it will not use data in violation of any applicable Federal or State equal employment opportunity law or regulation. 

The Society for Human Resources Management surveyed its 

members. They found, for example, that their members use credit 

checks for positions that have fiduciary or financial responsibilities, 

for executive positions, CFOs, or for positions where employees 

have access to a customer’s assets, corporate secrets, and technology platforms, including access to sensitive personal information. And I think these uses make sense. 

While media counts might lead readers to think differently, background screening products only include a credit check in about 15 

44 

percent of the cases. In other words, 85 percent of the time, a credit 

report is not used in the employment decision. 

The Association of Certified Fraud Examiners, however, has reviewed occupational fraud, and it found two top red flags exhibited 

by perpetrators of fraud were: living beyond one’s means; and experiencing financial difficulties. 

Finally, there seems to be a view that credit checks serve as a 

final yes or no for an employer. This is not the case. Employers use 

applications, testing, interviews, resume data, and many other data 

points. The credit check is used where it makes sense. Preserving 

this appropriate use under the current law is the right policy outcome. 

Thank you for this opportunity to testify, and we look forward to 

your questions. 

[The prepared statement of Mr. Pratt can be found on page 115 

of the appendix.] 

Chairman GUTIERREZ. Ms. Fortney? 

STATEMENT OF ANNE P. FORTNEY, PARTNER, HUDSON COOK, 

LLP 

Ms. FORTNEY. Thank you. I am Anne Fortney, a partner in the 

Washington, D.C., office of the Hudson Cook law firm. I appreciate 

the opportunity to appear before you again today. 

My testimony draws on many years of consumer protection practice in both the private and the public sectors, including service at 

the Federal Trade Commission. I believe my depth of experience 

enables me to comment upon legislation from the perspective of 

consumers, as well as the consumer financial services industry. 

I am aware that credit information is used as a factor in predicting risk other than consumers’ default on credit obligations, 

such as when it is used in insurance and employment purposes. 

Credit information is used in conjunction with other empirical information for these purposes, because it has been proven to be a 

reliable tool in predicting risk. 

While some may question the use of credit histories in employment situations, there are times when that information is essential 

to a prospective employer or licensor. In fact, to protect consumers, 

many States require credit information in evaluating applicants for 

mortgage loan originator licenses. 

As the Fair Credit Reporting Act recognizes, it is critical that 

consumer reports used for employment decisions be accurate. To 

that end, the law requires notice to a consumer before any adverse 

action based on a consumer report is taken. As a result, an employment decision is not made until the consumer is alerted to negative 

information in the report, and has the opportunity to correct any 

inaccurate information. 

A consumer will also receive notice if the consumer report information formed a basis for the denial of employment, or for another 

decision that affects the consumer, once employed. 

My previous testimony before this subcommittee addressed the 

use of medical debt collection information in credit histories. As 

others have testified, this information is a predictive characteristic 

in credit scoring systems. For that reason, its use benefits conVerDate Nov 24 2008 18:15 Oct 27, 2010 Jkt 058044 PO 00000 Frm 00050 Fmt 6633 Sfmt 6633 K:\DOCS\58044.TXT TERRIE
45 

sumers, as well as creditors and others that rely upon that information. 

In 2003, Congress enacted FCRA subsection 615(h)(8), which 

eliminated a consumer’s private right of action for all violations occurring under section 615. Since then, litigants across the country 

have argued about whether Congress intended to eliminate this 

private right of action, or whether there was a so-called scrivener’s 

error that led to this result. 

Some critics complain that there was no legislative history evidencing the congressional intent to achieve this result. However, 

the lack of legislative history is irrelevant. Because of the haste 

with which Congress deliberated and enacted the amendments to 

the FCRA at the end of 2003, there is a dearth of legislative history 

on any of the provisions. 

Moreover, some claim that the placement of the private right of 

action exclusion within this subsection is indicative of the congressional intent to limit its application to that particular subsection. 

However, that claim is not supported by anything in the legislative 

record. 

At this point in time, rather than trying to discern what Congress may or may not have intended more than 6 years ago, I believe the appropriate inquiry is whether Congress should now reinstate a private right of action. 

Based upon my experience with the FCRA, and my participation 

as an expert witness in class action litigation arising under this 

subsection, I do not believe that there is any measurable benefit for 

consumers in reinstating a private right of action for its violations. 

There is no indication that consumer report users routinely fail to 

comply with the section 615 adverse action notice requirements 

since the elimination of the private right of action. 

The National Consumer Law Center’s written testimony mentions 44 cases in which it claims to have alleged consumer reports 

users’ failure to give an adverse action notice. In fact, virtually all 

those cases involved a different allegation, usually that creditors 

gave consumers a notice, as required, but the notice was not clear 

and conspicuous. 

In other words, the section 615 claim in those cases was that, although consumers received the proper notice, it was not in the 

proper type size. The courts rightly saw those claims as blatant attempts to extract huge statutory damages in class action suits 

where there was no consumer harm. 

There is no indication that the Federal agency or State attorneys 

general administrative enforcement of section 615 is inadequate. At 

the same time, as described in my written statement, history shows 

that the only persons who stand to benefit from the reinstatement 

of a private right of action under section 615 are those lawyers who 

can pursue class action litigation, unless Congress also implements 

appropriate limits on class action liability. Otherwise, consumers 

will ultimately be the ones who bear the cost of litigation in the 

form of increased credit and insurance rates. 

Thank you for the opportunity to testify. I will be glad to answer 

your questions. 

[The prepared statement of Ms. Fortney can be found on page 67 

of the appendix.] 

46 

Chairman GUTIERREZ. I thank the gentlelady for being with us 

once again here. We are going to go right into the questions. 

First, I would like to ask unanimous consent that Mr. Cohen of 

Tennessee be allowed to sit in at this hearing, and when his turn 

comes, be allowed to ask questions. Hearing no objection, it is so 

ordered. And we welcome Mr. Cohen here, to this hearing. 

So, Mr. Pratt, large amounts of debt and living beyond your 

means, huh? So I guess Madoff would have done really well. He 

would be like your stellar candidate, right? Multi-millionaires like 

Mr. Skilling at Enron, all of—I mean I can go through—Bolski? I 

guess they would all be just fine. But someone who is poor—in 

other words, if you’re poor, you’re likely to live beyond your means, 

right? 

Mr. PRATT. [No response.] 

Chairman GUTIERREZ. It’s tough. So you’re likely to have a propensity to be a criminal, right? No? What did you say? You said 

that you were going to judge people’s character, right? You judge 

people’s character, given your credit scores, right? It’s a judgement 

of people’s character and their integrity. 

Do you really think you can judge people’s character and integrity, that you have the right to do that, or the ability to do that, 

to judge people’s character? Do you feel comfortable doing that? 

Mr. PRATT. If I could respond— 

Chairman GUTIERREZ. Yes, I’m waiting. 

Mr. PRATT. Thank you, sir. Two things. No, somebody who is 

poor is not inherently somebody with bad character. As a big brother with Big Brothers and Sisters, I worked with a mother who— 

Chairman GUTIERREZ. One of your— 

Mr. PRATT. —had three jobs, Congressman, and who worked very 

hard and paid her bills, and— 

Chairman GUTIERREZ. Excuse me. One of your members is 

Experian, one of the big three credit bureaus. And it touts ‘‘employment insight’’ reports as providing insight into ‘‘an applicant’s integrity and responsibility towards his or her financial obligation.’’ 

An applicant’s integrity. It’s easy to see a potential employer rejecting an applicant with negative credit information in his or her 

credit report, particularly when it is sold as providing insight into 

an applicant’s integrity. So— 

Mr. PRATT. This— 

Chairman GUTIERREZ. —one of your members is actually judging 

people’s integrity based on credit information? 

Mr. PRATT. No, to the contrary. An employer uses lots of different 

data to make a final hiring decision. 

Chairman GUTIERREZ. No, but they— 

Mr. PRATT. And it’s possible— 

Chairman GUTIERREZ. They will use one of your clients in 

order— 

Mr. PRATT. They could— 

Chairman GUTIERREZ. —to get that information. 

Mr. PRATT. They could use— 

Chairman GUTIERREZ. Okay. Is it or is it not true that Experian 

touts, ‘‘employment insight,’’ and they are one of the members of 

your group? 

Mr. PRATT. Yes, they are. Yes, sir. 

47 

Chairman GUTIERREZ. And I picked it right out of their information. It says, ‘‘into an applicant’s integrity and responsibility towards his or her financial obligation.’’ Integrity and responsibility 

in character. 

You know, I find it astonishing that someone could predict or 

claim to predict, especially working men and women, their integrity 

and their responsibility is based on that. 

Ms. Chi Chi Wu, let me just ask you a question. You talked 

about a spiral. Could you talk about, ‘‘I have bad credit, therefore 

I am denied a job?’’ Tell me how that works. 

Ms. WU. Well, it’s very simple, and it’s actually exactly as you 

described it in your opening statement. If you lose your job, you’re 

not going to be able to pay your bills. You’re going to fall behind 

on your credit card bills, maybe your mortgage, maybe your auto 

loan. Then you try to get a job. A potential employer runs a credit 

check and denies you a job. If you have bad credit, you can’t get 

the job. And without income, you can’t fix or improve your credit. 

So, it’s just a vicious Catch-22. 

And it’s societal, as well. That affects your ability to both build 

assets, your children’s—what you could pass down to your children, 

and there are racial disparities. You know, the evidence cited that 

certain minority groups have lower credit scores, as a group. 

That—if credit scores are supposed to be an accurate translation of 

credit reports, what the industry claims it does, then you’re talking 

about a huge disparate impact on these groups. 

And, you know, people don’t start off at the same places. So a 

poor person who loses their job is less likely to have the assets to 

repay those bills than someone with more means and maybe a little 

savings when they lose their job. So it just makes things worse. 

Chairman GUTIERREZ. Thank you. I just want to make sure that 

we have from Mr. Pratt’s testimony—I have it here, you introduced 

it to us—‘‘The Association of Certified Fraud Examiners reviewed 

occupational fraud between early 2006 and early 2008, and found 

that the top 2 red flag warnings exhibited by perpetrators leading 

up to the fraud were instances where the fraudster was living beyond his or her financial means—present in 39 percent of all cases 

with the median loss of $250,000—or experienced financial difficulties—present in 35 percent.’’ 

So, if you have a financial difficulty, and if you get sick, as has 

already been testified, most of the financial difficulties, the majority of financial difficulties, can be related to illness and lack of 

health care insurance, then you are probably going to be a thief. 

And your integrity is going to be questioned, and you get to do 

that. And I just think— 

Mr. PRATT. To the— 

Chairman GUTIERREZ. I don’t have any more time. My time has 

expired. Mr. Hensarling, you are recognized for 5 minutes, sir. 

Mr. HENSARLING. Thank you, Mr. Chairman. Mr. Pratt, if you 

would like to respond to the chairman’s comments, I will give you 

that opportunity. 

Mr. PRATT. Thank you. A couple of things. First of all, credit 

scores are not used—I just want to make that clear—I understand 

the credit history is used, but not credit scores. So that’s an irrelevant discussion. Credit scores are not used in employment. 

48 

An employer wants to know, when they look at a credit report, 

what caused the problem in the credit report. Employers are smart, 

and they want to hire good people. That’s why they use resumes, 

and that’s why they use other types of tests of your qualifications. 

And that’s why a credit report is not a single determining factor 

in whether or not you get the job. 

And if you show some financial distress over the last couple of 

years, employers are smart enough, because it’s a credit history, 

which shows the full history of your hard work. It shows, by that 

band of difficulty is correlating very closely with the circumstances 

we have had in this country, with unemployment. So, an employer 

is not going to simply flip that application aside, particularly when 

they have a qualified person. 

The other very important point—and I keep coming back to 

this—is credit reports are not being used across the whole spectrum for every kind of job. If you’re stocking a shelf, a credit report 

is probably not being used. If you’re entering the construction 

trades, a credit report is probably not being used. It’s being used, 

based on the surveys from the Society for Human Resources Management, as you would expect, if you are a CFO, and you have fiduciary responsibilities, if you have access to cash, a small business 

owner may want to know that. 

And, by the way, small business owners are some of the ones 

who do want to use a credit history as part of the review process. 

But that’s why they have interviews, Mr. Hensarling. They have 

interviews to learn more about why you are qualified for the job, 

and why you should be the one hired for the job. 

Mr. HENSARLING. But, Mr. Pratt, ultimately it is your clients 

who decide how they wish to use this information. You are simply 

observing in the marketplace that most will use it as a part of an 

interview process. 

I have to admit I have had a number of different jobs, everything 

from bussing tables to serving in Congress. And every job I had to 

go through a job interview. The one for Congress was particularly 

grueling and took a year. 

Mr. PRATT. Right. 

Mr. HENSARLING. So, what you’re saying is, this may be part of 

a hiring decision. I must admit, as I listen to this debate—and it 

is a little bit like Groundhog Day—I suppose a lot of these issues 

get recycled—but I continue to be struck by the mindset that 

Americans need congressional approval in deciding what the criteria is they’re going to use to make a hiring decision. 

I continue to be struck at this current that is anti-freedom that 

says that you have to have congressional approval in your decision 

to offer credit. You know, I have read the Constitution, and I don’t 

see where there is a constitutional right to force my neighbor to 

lend me money. I do not see that in the Constitution. 

Again, and so what I see here, in my opinion—and I know the 

proponents—I don’t question anybody’s motives or intentions, I 

know their intentions are good. But at the end of the day, what I 

see, frankly, are efforts to censor credit files. This is a form of government censorship, to tell Americans that there is information 

that their Congress will disallow them to have because they’re not 

trusted with that information, and that somehow it is the responsiVerDate Nov 24 2008 18:15 Oct 27, 2010 Jkt 058044 PO 00000 Frm 00054 Fmt 6633 Sfmt 6633 K:\DOCS\58044.TXT TERRIE
49 

bility and the burden of the small business person or the guy who 

is trying to do a little store credit in the furniture store in Mineola, 

Texas, that somehow they have to justify to the government their 

exercise of freedom, as opposed to their government justifying restricting their freedom. You know, the default position ought to be 

freedom. And so I simply don’t understand this current of thought. 

Ms. Wu, you talk about having a discriminatory impact in hiring 

decisions. But if there are two people who are applying for a job, 

and if the employer wishes to use a credit score as the decisionmaking factor and you deny him that, and the person who had the 

bad credit score, be it his fault, somebody else’s fault, nobody’s 

fault, but if you deny that opportunity, why aren’t you discriminating against the person who had the good credit record? 

And he is denied the job, and yet you would somehow deny that 

information from going into the file and essentially de facto discriminating against the person with the good credit record. How do 

you justify that? 

Ms. WU. I mean, employers don’t have unfettered discretion to 

have all the criteria they want. We do have equal employment opportunity laws. And one of those is that— 

Mr. HENSARLING. And is the Obama Administration not enforcing those? 

Ms. WU. And the practices that have a disparate impact are prohibited. And we think that the use of credit histories— 

Mr. HENSARLING. Is the Obama Administration enforcing those 

laws or not? 

Ms. WU. The Equal Opportunity— 

Chairman GUTIERREZ. The time of the gentleman has expired. 

Ms. WU. —Commission is looking into this. 

Chairman GUTIERREZ. Thank you. Mr. Green, you are recognized. 

Mr. GREEN. Thank you, Mr. Chairman. I would like to associate 

myself with the comments of the Chair. And I would also like to 

ask this panel the same question that I asked a previous panel, 

with reference to whether or not one’s credit score is predictive of 

one’s likelihood to have an accident. We will start with Ms. Wu. 

Ms. WU. I don’t think one’s credit score has anything to do with 

whether one is likely to have— 

Mr. GREEN. Do you know of any study based on empirical evidence that supports this claim? 

Ms. WU. Not that I am aware of. I am not an insurance expert, 

but not— 

Mr. GREEN. All right. Well, let’s go to the next person, please. 

Mr. RUKAVINA. I am not an expert in this area. I am not aware 

of any studies that indicate that there is a correlation. 

Mr. GREEN. The next, please? 

Mr. PRATT. I would be happy to provide you an answer in writing. 

Mr. GREEN. Thank you very much. I look forward to your answer 

in writing. But as for now, do you know of any studies that indicate 

that one’s credit score is predictive of one’s likelihood to have an 

accident? 

Mr. PRATT. I have staff who have read those studies. I personally 

have not. So I really truly need to— 

Mr. GREEN. I appreciate— 

50 

Mr. PRATT. —at least do the right thing and consult with them 

first. That’s all. 

Mr. GREEN. Thank you. Ma’am? 

Ms. FORTNEY. I am not an expert in this area, but I have worked 

with insurance companies. I know that an insurance score, which 

often includes a credit score component—is likely to predict the 

likelihood that somebody will file a claim, which means it’s likely 

to predict they will have an accident. 

Mr. GREEN. Well, let’s examine that statement. The likelihood 

that you will file a claim is indicative of the likelihood that you will 

have an accident? 

Ms. FORTNEY. Well, yes. 

Mr. GREEN. How is that? 

Ms. FORTNEY. Well— 

Mr. GREEN. An accident. 

Ms. FORTNEY. I am talking about an accident. And the question 

is, when there is an accident, the insurance company learns about 

it because a claim is filed. What the insurance company is trying 

to predict is the likelihood that a claim will be filed. That’s what 

they’re insuring against. 

Mr. GREEN. I understand. But your indication is that the likelihood of filing a claim is indicative of how I drive, whether I am 

going to have good driving habits, whether I am going to stop at 

stop signs, whether I am going to speed, whether I am going to 

drive recklessly. The likelihood that I will file a claim is indicative 

of how I will drive? 

Ms. FORTNEY. What I said is that if you don’t have an accident, 

you won’t file a claim. 

Mr. GREEN. Oh. Well, I understand. But see, what I can extrapolate from what you are saying is this: The likelihood of filing a 

claim is based upon the likelihood of your having had an accident, 

that there is some correlation between the accident and the claim. 

But my question goes to the likely—being—predicting whether or 

not you will have the accident itself. That’s the question. Can one’s 

credit score predict whether one will have an accident? 

Ms. FORTNEY. I think we disagree. I think it’s the same thing. 

Mr. GREEN. Well, okay. I don’t see the logic in what you say. I 

will accept what you say, but I am hoping that you can help me 

with some logic, as opposed to just a statement. Because it’s easy 

to say things, but where it the logic to support the notion that one’s 

credit score is predictive of whether one will have an accident? I 

don’t see it. 

And I am asking for empirical evidence. Do you have empirical 

evidence to support this premise? Let’s not go to the claims, because if your bills are behind, if you have poor credit and your bills 

are behind, you haven’t managed your affairs well, you have an accident. There is a good likelihood you will use your insurance. So 

that means there is a good likelihood that you will file a claim. But 

does it predict that you will have the accident that causes you to 

file the claim? That’s the question. 

Ms. FORTNEY. Well, again, I don’t know of any studies on that 

point. What I said, however, is that the insurance companies are 

pricing according to the likelihood you will file a claim after having 

had an accident. That is how credit— 

51 

Mr. GREEN. Well, let’s examine that. These will be my last seconds. 

The likelihood that you are going to file a claim. So, do the insurance companies want people who have accidents to—do they want 

to do business with them? Simply because you will now file a claim, 

you had an accident—that’s what insurance is for, to be there when 

you have the accident—so if you—there is a likelihood that you’re 

going to file a claim, even though you may not be at fault, then 

there is some means by which you are viewed as negative, and 

therefore, you will pay more? 

Ms. FORTNEY. The nature of insurance is that people who pose 

a higher risk of whatever they’re insuring against—in this case, 

claims—will pay more. 

Mr. GREEN. But they are insuring against now the filing of 

claims. You see, it’s not the accident. We have escaped the accident. You have—thin lines of distinction have to be made. So now 

we are saying that they don’t want to insure you simply because 

you filed the claim. Not because you had the accident, because 

you’re likely to file a claim. 

I see that my time has expired, Mr. Chairman. I yield back. 

Chairman GUTIERREZ. The gentleman yields back. The 

gentlelady from California. 

Ms. WATERS. Thank you very much, Mr. Chairman. I have no 

questions. I simply want to thank this panel for being here, and 

to say that I am focused on working with you and your legislation. 

We know who the insurance companies are. We know what they 

do. And for the commissioners who are in bed with them, we just 

need some laws that are going to deal with this issue. 

I yield my time back to you. Thank you. 

Chairman GUTIERREZ. I thank the gentlelady. I guess the 

claim—because I think when we go back through the record, we 

are going to find that even the insurance representatives keep 

going back to the likelihood of filing a claim. 

I have a feeling that I think I know the answer to that, and that 

is if you make more money, you are probably less likely to file a 

claim. That is to say, let’s say you have insurance on your house. 

You burn something, right? Cause some damage. You are probably 

more likely to just take care of it yourself, given your extra income 

and your income status than filing a claim, because you do not 

want your insurance premiums to increase. 

Somebody bangs into your car. You are likely to take care of it. 

You are less likely to take care of it and file a claim if you make 

less money. It is really about the likelihood of a claim, I think, 

more. We are going to delve into this. 

Given the fact—I think Mr. Green—they keep using the words 

‘‘likelihood of claim.’’ Not likelihood of having an accident, the likelihood of filing a claim. 

I think we have to look at that. I would like to say our purpose 

here is not to deny people access to information, but correct information, accurate information, information that truly reflects who 

they are. 

I want people to get good information but I do not want people 

to get bad information. I think we do have a responsibility. As a 

matter of fact, the Equal Opportunity Commission has gone and 

52 

said that using information from credit reports for employment is 

discriminatory. They are leading actions against that. People are 

doing that. 

It is interesting that Mr. Pratt represents three of the people 

who do the credit industry, and here are the credit bureaus. 

Equifax decided last year to stop selling it. They said no, we are 

not going to do that any more. 

Do you know why, Mr. Pratt, they decided to stop selling it for 

employment purposes? 

Mr. PRATT. I am not aware they have. 

Chairman GUTIERREZ. You should ask them and come back and 

let us know. Again, I do not know. We are going to ask them because it says, ‘‘Equifax is no longer selling credit reports for employment screening.’’ It says, ‘‘used to determine eligibility, and 

while it is perfectly legal under the Fair Credit Reporting, the company seems to have proactively decided that selling reports to employers was not worth the trouble.’’ 

In other words, they see trouble on the horizon with this, probably due to discriminatory actions that might or might not take 

place. 

We are going to ask them as part of our process. We are going 

to ask them to come here. I think it is an interesting question. If 

there are three credit bureaus and one of them does not want to 

go through the trouble, I would like to know what the ‘‘trouble’’ is. 

It is not about denying people information. It is just correct information. I would encourage everyone here on this panel and anyone 

listening, since through Congress and a law which we on this side 

of the aisle advocated, you now get your credit report once a year. 

It does not give you your credit score, only the credit report. The 

credit score is still a little more murky, but you get your credit report. 

Listen, go get one. When you see the mistakes that are in your 

credit, that is what we want. It is almost as though we depart from 

the premise that the credit bureaus are somehow, I do not know, 

omnipotent, they do not create any errors or mistakes. 

I would like to just ask one last question and that is I want to 

go back very, very quickly to Mr. Rukavina. They told us earlier 

that if I am sick, that it is put in my credit report but does not 

have an impact on my credit score. Just elaborate very quickly on 

that. 

Mr. RUKAVINA. It is my understanding that collection accounts go 

into the credit history portion of a credit score and that following 

a hearing before this subcommittee, it was clarified that medical 

accounts in collection are used as a factor in determining credit 

scores. 

What is confusing to me as a consumer and wearing my policy 

hat is why medical accounts are treated differently based on who 

furnishes the data to the consumer reporting agencies. I am curious as to whether other data are treated in a similar fashion, depending on who furnishes it. 

Chairman GUTIERREZ. I thank you. Ms. Kilroy, you are recognized for 5 minutes. 

53 

Ms. KILROY. Thank you, Mr. Chairman. Thank you to the panelists. Ms. Fortney, you stated that you believed that medical debt 

is predictive in determining an individual’s credit worth? 

Ms. FORTNEY. I believe I said medical debt collection information. 

It is my understanding that is the information that is used in credit scoring, as witnesses testified at the last hearing. 

Ms. KILROY. Witnesses when they testified at the last hearing— 

I ask unanimous consent to enter into the record a May 3rd letter 

from VantageScore to me. 

You believe it is appropriate that we consider medical debt differently depending on where the information is coming from? Is 

that what you are telling us? 

Ms. FORTNEY. No. What I am saying is in credit scoring systems, 

as I recall, I think it was the witness from Fair Isaac that testified, 

in a credit scoring system, the credit scoring models they have developed, they used collection information including medical debt 

collection information in the development of those models because 

that information has been found to be predictive in the models that 

are predicting credit risk. 

Ms. KILROY. You disagree with VantageScore which stated categorically that, ‘‘We do not believe medical debt will contribute to 

predictive performance?’’ 

Ms. FORTNEY. I have not seen that letter. I would like to see it 

before I comment on it. 

Ms. KILROY. Would you agree or disagree with the statement? 

Ms. FORTNEY. What is that statement again? 

Ms. KILROY. Do you agree or disagree that medical debt will contribute to predictive performance? 

Ms. FORTNEY. What I understand and what I have said is we are 

talking about collection information. That statement refers to medical debt alone without discussing whether that medical debt information is limited to collection information. 

Ms. KILROY. Mr. Rukavina, you talked about the confusion and 

inconsistency in medical debt reporting. You have taken a look, as 

I understand, at some medical debt studies. Have you seen when 

taking a look at or talking to either lenders or others an impact 

that medical debt, including paid medical debt, may have on a person’s ability to obtain, say, a home loan? 

Mr. RUKAVINA. We have talked with people from the lending industry who have been confused by the credit scores of individuals, 

that they feel are quite good credit risks, and when they look at 

the credit report, find there are oftentimes several either zero balance medical accounts that are in collection or medical accounts 

that have a very small balance in collection. 

This to us, based on our experience, indicates oftentimes not a 

problem in terms of credit, but a problem regarding the health care 

billing system and frankly, the insurance adjudication process. 

These bills are then sent to collection and we have been told by 

some in the collection industry that a significant number of people 

whom they contact pay off those bills promptly. 

We believe they are doing the right thing by paying their bills, 

which is advised by those in the credit scoring industry, that is 

something people should do. We believe they are doing that. 

54 

In spite of those bills having a zero balance, they continue to 

drag down people’s credit scores. We have worked with some in the 

industry who have run people’s credit history through a credit 

score simulator and have found that by removing medical trade 

lines in collection, people’s credit scores have increased by 50 to 

100 points. These are for medical accounts that have a zero balance 

due. 

Ms. KILROY. Would you agree that hurting people’s credit scores 

with paid medical debt for the 7-year period could have an adverse 

effect on America’s economic recovery and people’s ability to get a 

loan, buy a car, buy a house? 

Mr. RUKAVINA. I would absolutely agree. 

Ms. KILROY. Thank you. I yield back. 

Chairman GUTIERREZ. The gentlelady yields back. We have an 

unanimous consent request. 

Mr. HENSARLING. Thank you, Mr. Chairman. I ask unanimous 

consent that a statement by the Independent Insurance Agents and 

Brokers of America be entered into the record. 

Chairman GUTIERREZ. Without objection, it is so ordered. 

The insurance agents apparently got to both of us. Mr. Cohen, 

you are recognized for 5 minutes. 

Mr. COHEN. Thank you, Mr. Chairman. I appreciate you allowing 

me to participate in this panel and for your co-sponsorship of the 

bill that we have introduced on credit reports, which I think is extremely important. 

First, I would like to ask Mr. Pratt and Ms. Fortney if you can 

help us. It has been reported that at a recent legislative hearing 

in Oregon, TransUnion Director of State Government Relations 

Eric Rosenberg said, ‘‘At this point, we do not have any research 

to show any statistical correlation between what is in somebody’s 

credit report and their job performance or their likelihood to commit fraud.’’ 

Are you all familiar with that statement? 

Mr. PRATT. I am. 

Mr. COHEN. Do you concur or not concur? 

Mr. PRATT. I do not because— 

Mr. COHEN. Do you have statistical or empirical evidence? 

Mr. PRATT. I would be happy to keep going. I do not because we 

really need the employers here. It is the employers who make the 

decision as to when to make a decision based on— 

Mr. COHEN. Thank you, sir. I got an answer and I have heard 

it before. You do not have any data to discredit Mr. Rosenberg, and 

Mr. Rosenberg does not have anything to support any reports or 

any information to support the credit reports. 

We are kind of going in a circle, kind of a Catch-22, just like the 

persons— 

Mr. PRATT. Not really, because it is similar to asking us whether 

a creditor effectively uses a credit report for a lending decision. You 

have to have the creditor here in order to answer that question because they are the one that is going to be able to explain how they 

use the data, whether they include medical debts or do not include 

medical debts. 

I think that is very important. 

55 

Mr. COHEN. Mr. Pratt, I have a limited amount of time, and I 

am not going to go through this because the question was statistical correlation and there is none. 

Let me ask you this. Would you agree—Mr. Hensarling said we 

should have freedom and this works against freedom. At one time, 

that same argument was used about discrimination laws on race 

and gender and other areas, disability. 

Would you agree that we should have laws that do not allow for 

discrimination based on race and gender? Would you agree with 

that? 

Mr. PRATT. We have those laws. 

Mr. COHEN. You agree they should be on the books; right? 

Mr. PRATT. Those laws are on the books. 

Mr. COHEN. Do you agree they are good things? 

Mr. PRATT. And they work well. 

Mr. COHEN. You agree they are good things? 

Mr. PRATT. Sure. 

Mr. COHEN. And if something operates in practice to make it de 

facto or in its application a racial barrier and a racial discrimination, then we should cure that as well, should we not, sir? 

Mr. PRATT. If that is proven. 

Mr. COHEN. Yes, sir. Is it a fact that because of Jim Crow laws 

and slavery and years and years of oppression against African 

Americans, would you agree that it is more likely that African 

Americans would have less opportunities to have inherited wealth 

and accumulate inherited wealth from property or previous jobs or 

stocks or other bonds and investments of ancestors who might have 

owned land or had cotton companies or shipping companies or 

whatever, that they would be less likely to have accumulated 

wealth that could help them through hard times? 

Would you agree that is a fact? Do you think African Americans 

have equal amounts of wealth stored up, even though they were 

slaves for 400 years and suffered under Jim Crow for 100 years 

subsequent to that, Mr. Pratt, would you agree with that or disagree? 

Mr. PRATT. I just do not know. 

Mr. COHEN. Obviously, you do not know. I will tell you it is a 

fact. Anybody would know it is a fact. We had 400 years of slavery 

and 100 years of Jim Crow as distinguished from another group 

who had property, who owned slaves, who sold slaves, who had discriminatory practices where they could have advantages and they 

could get credit and they could get loans. They owned the insurance companies and the banks and the credit bureaus, so they had 

the wealth. 

When they lose their job or they have a difficult financial time, 

they have mama or daddy or grand-daddy’s money to fall back on. 

Their credit scores are good. 

Yet when you look at the credit scores, you say that credit score 

indicates whether they do good work and have hard values. I submit to you good work and hard values is not a constant. 

If you have money to fall back on, resources, because of family 

wealth, you submit that shows because your credit report is good 

that you have good work habits and hard values, that credit history 

equals hard work. 

56 

That is not necessarily true. Credit history shows you have family sometimes and you have support from years and years of opportunity that was denied others, and the fact is the Equal Employment Opportunity Commission has sued certain people over the 

practice of using credit reports because they believe it has an effect, it is a racial barrier, and there are racial disparities, and it 

should be pursued. 

I think it should be, too. I think what you are talking about is 

a world where all is equal. If you do statistics, Ms. Fortney, you 

are great on statistics, I think you were thinking about fraud and 

not accidents. 

Mr. Green was talking about accidents. There is no way to predict accidents. Maybe a few people might not file claims because 

they can afford it. You are submitting people who have bad histories might commit fraud, have an accident, which really is not an 

accident, so they can make a report and get some money. I think 

that is what you are alluding to. 

Mr. Hensarling talking about discriminating against the person 

who does not have a good credit rating, you do not discriminate 

against him, you let that person, he or she operate against the 

other person on an equal basis, and the employer can choose them 

on who can do the best job. 

Mr. Pratt, you said a lot of jobs do not use credit reports. If that 

is the case, would you agree that maybe we should pass a bill to 

make sure that those jobs that you concur where they do not use 

credit reports now, like skills, etc., that there should not be the 

permission to use credit reports? 

Could you sit down with us and come up with those particular 

industries? 

Chairman GUTIERREZ. Answer the question and then we will finish up. 

Mr. PRATT. I think the laws today respond directly. We cannot 

discriminate. We cannot unintentionally discriminate. I think the 

way the FCRA works today, employers know they have responsibilities to decide when it is appropriate to use a credit report. 

I do not think I have seen enough to know precisely when to 

choose yes or no. 

Chairman GUTIERREZ. The time of the gentleman has expired. 

Thank you, Mr. Pratt. 

Mr. COHEN. Thank you, Mr. Chairman. 

Chairman GUTIERREZ. Congresswoman Kilroy, you have a couple 

of documents for which you would like unanimous consent to be entered into the record? 

Ms. KILROY. Yes. Letters of support. 

Chairman GUTIERREZ. We have letters of support. Without objection, it is so ordered. 

I want to thank the witnesses and the members for their participation in this hearing. The Chair notes that some members may 

have additional questions for the witnesses which they may wish 

to submit in writing. Without objection, the hearing record will remain open for 30 days for members to submit written questions to 

the witnesses and to place their responses in the record. 

This subcommittee meeting is now adjourned. 

[Whereupon, at 12:58 p.m., the hearing was adjourned.] 

(57) 

A P P E N D I X 

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