Wednesday, July 21, 2004
By Ted Roelofs
The Grand Rapids Press

Grand Rapids resident Crystal Taylor says it's tough enough trying to pull herself out of poverty.

Taylor, 23, owes $1,400 on a phone bill that has been hanging over her head for years. But when you add the fact that insurance companies can use her credit rating to raise her rates, Taylor figures enough is enough.

"That's isn't fair," Taylor said. "You got other bills you're paying, and that makes it harder."

A state hearing today was to air public reaction to a proposal by Gov. Jennifer Granholm to ban credit scoring in setting automobile insurance rates.

Insurance companies call the system a fair way to set rates, warning that consumers with good credit ratings will see rate hikes if the practice is banned.

Backers of the ban say it will benefit most insurance customers by forcing insurers to roll back rates as much as 45 percent.

Julie MacDougall, a credit counselor with Greenpath Debt Solutions in Grand Rapids, sees clients with all sorts of credit problems.

But when you add higher insurance rates to unpaid bills and credit card debt, MacDougall said, that makes it tougher for many to dig out of debt.

"It does seem like it hits you when you're already down," MacDougall said. "This just makes it worse."

MacDougall said she dealt with a couple clients in the past two weeks with unusually high automobile insurance rates.

"They said they were told by their insurance company that it was because of their credit score," MacDougall said.

"It does seem like you are going after folks who are already struggling."

Linda Watters, head of the state Office of Financial Services, contends the measure would require insurance companies to lower their base rates by 10 percent to 45 percent.

But she acknowledged under questioning in June by Republican members of the Senate Banking and Financial Institutions Committee that those with good credit scores could end up paying more.

"Rates will go up, and we don't want to be blamed for it when it happens," said Dyck VanKoevering, general counsel for the Insurance Institute of Michigan.

"We think people with good credit backgrounds ... should be rewarded."

According to VanKoevering, customers with good credit scores could expect rate hikes up to 20 percent or more if the credit scoring ban takes effect.

VanKoevering accused Granholm of "confusing people" by promising rate reductions of 10 percent to 45 percent.

He also denied the contention that credit scoring unfairly discriminates against low-income consumers.

"Insurance scores do not take into account income or race or national origin," he said.

Grand Rapids insurance agent Renee Zylstra believes the credit score system has its flaws, especially since different companies use different systems in determining a credit score.

"There are a lot of things that are wrong with it," she said.

But Zylstra predicted lots of unhappy customers -- those who get discounts because of good credit scores -- if that system is rescinded.

"They are going to be back screaming at us," she said.

In the June hearing, Democrats argued that poor people wind up subsidizing customers with better credit.

Watters maintains that credit scoring is unreliable and unfair.

Among her criticisms:

Credit scores often are based on incomplete or incorrect information.

Credit scoring penalizes consumers who are victims of economic or medical catastrophes.

Those who use no credit or little credit can be penalized with a bad score.

State Sen. Gerald VanWoerkom, R-Norton Shores, a member of the banking committee, said he is concerned that government may be meddling where it doesn't belong.

"I tend to think when the government sticks their nose into it we often set up an unnatural situation in the marketplace," VanWoerkom said.

VanWoerkom said he still was "trying to get a handle on whose rates are going to go down and whose rates are going to go up."

The ban on credit scoring would take effect in January unless the House and Senate reject it.

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