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Fair Credit Reporting Act

Statement Given by Superintendent Gregory V. Serio

June 4, 2003

Good morning, Mr. Chairman and Members of the Subcommittee. I am Gregory Serio, Superintendent of Insurance of the State of New York. I come before you today representing the fifty states and the District of Columbia, comprising the National Association of Insurance Commissioners. It is our privilege to provide you with our views on the Fair Credit Reporting Act and the use of credit information in insurance transactions.

The states, theDistrict of Columbia and other members of the NAIC, as well as the NAIC itself, and other groups representing state insurance policymakers, have been hotbeds of activity in the areas of evaluating and regulating the use and protection of consumer credit information. From Kansas and Texas and a dozen other states where new laws governing credit scoring are or are expected to be enacted, to Ohio and Washington, where regulatory action has been taken, to Alabama where new Commissioner Walter Bell has already made credit scoring a top regulatory issue, there has been a near-universal interest in an engagement on the matter of credit scoring and safeguarding consumer information. Throughout the 90’s, and with more important milestones like the 1990 release of the NAIC’s White Paper on Credit Scoring, the states have been aggressively managing the issue.

The common thread running through the actions of the NAIC and its members, and the state legislatures, of course, is the Fair Credit Reporting Act. With its articulated goals of preserving fairness and equity for consumers in the ways that business utilizes consumer credit information and its objective of maintaining uniformity for ease to both business and consumer alike. The Fair Credit Reporting Act has been the core of all regulatory and enforcement activities undertaken in recent years.

The Subcommittee has been provided with a compendium of various state laws, regulations and legislative initiatives relating to credit scoring, credit reporting and other uses by insurers of this information in the underwriting and rating of insurance policies. Our focus, it can be said, has been on managing the use of consumer information or credit score models, limiting or prohibiting them as sole determinants in making insurance underwriting or rating decisions. In those cases where credit data, either individual credit information or scores, is utilized, the states are routinely requiring adequate disclosure of the source, format or application of that data to the underwriting, rating or renewal processes so that insureds may reasonably understand the bases for an insurer’s actions and act accordingly.

While some states, such as California have not allowed the use of credit data in underwriting or rating on some lines, there is strong support for the notion that credit history – that is, the "economic behavior" – of an insured plays some role, has some correlation to the procurement and price of that "economic commodity" we call insurance. Actuarial reviews initiated by the NAIC lend support to this notion. However, moderation in the use of such data with maximum practical transparency has allowed insurers to utilize this data without running afoul of either the Fair Credit Reporting Act, or state laws addressing the use of credit information, and the pursuit of fair and equitable treatment for consumers, and the federal law’s specific requirements that "adverse actions" based on credit data analysis be communicated to those against whom such action is taken. It should be remembered also that most states have either their own fair credit reporting standards, like we do in New York, or general insurance statutes prohibiting unfairly discriminatory practices by insurers that also serve to protect the public from unwarranted intrusions into or use of personal credit data.

The work of the NAIC on the issue of credit scoring continues under the leadership of NAIC President and Arkansas Commissioner Mike Pickens and the Co-Chairs of the Credit Scoring Working Group, Joel Ario of Oregon and former Congressman Mike Kreidler, Commissioner of Insurance in Washington State. The NAIC will also be giving final approval to a regulatory options analysis in credit scoring to be used as a policy guidance document for regulators, and also to a consumer education brochure, entitled "Understanding How Insurers Use Credit Scoring", both of which have been provided to the Subcommittee. The working group will also continue to consult with the Federal Trade Commission on fair credit reporting enforcement issues. Indeed, it has been the union of federal and state regulators, together with members of this House, the Senate and state legislators from across the country, that should give consumers – our shared constituencies – confidence that fair credit safeguards will be continued.

As Chairman of the NAIC’s Privacy Issues Working Group, I have been directly involved in one of the other significant components of fair credit reporting, the safeguarding of personal financial information. All members of the NAIC have seen basic privacy enactments in their jurisdictions, particularly since Gramm-Leach-Bliley was enacted in 1999. To date, there have not been significant market conduct problems or serious erosions in personal privacy through the sharing of data among affiliates within insurance organizations. However, we remain diligent in our monitoring of data sharing practices to make certain that they do not lead to frustration of both the basic concept of fairness and the protection against discriminatory practices. And we likewise remain committed to preserving maximum uniformity in approach to our regulation of information-sharing practices. Following the provisions of GLBA has allowed the states, on their own or through the NAIC’s Model Privacy Regulation, to maintain a level of uniformity across the country, both in terms of consumer protections and equity among the various financial services sectors. Wherever the Congress may go in terms of pre-emptions, particularly in the area of affiliate-sharing of information, it should consider the current state of broad uniformity in this important area across the federal and state landscapes.

My thanks to the Chair and this Subcommittee for allowing the NAIC to share these views with you today, and we hope that they assist you in your deliberations on renewal of the Fair Credit Reporting Act.

Thank you.