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NJ needs to ban car insurance companies from using credit scores to set rates, advocates say
By
Karen Yi
Published May 16, 2022
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By
Karen Yi
Published May 16, 2022
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A group of New Jersey advocates is urging the state to prohibit auto insurance companies from using a person's job, education or credit score to determine pricing. They say the practice results in low-wage drivers paying higher premiums than wealthier motorists.
“You can have a doctor or a lawyer or some other kind of professional who has a worse driving record, even a DUI sometimes, who are paying lower rates than someone in a low wage occupation with bad credit or fair credit,” Renee Koubiadis, the anti-poverty program director at New Jersey Citizen Action, said in an interview.
“That's taking away income from them to be able to save up, to buy a house or send a child to college, or even, from day-to-day, from putting more food on the table or getting needed medications or other medical care.”
NJ Citizen Action along with a coalition of more than 35 groups sent a letter to the state Department of Banking and Insurance last month, urging them to change the rules for auto insurance companies and follow the lead of other states like California, Massachusetts and New York.
New York, along with six other states, bans auto insurance companies from using occupation or education level to set rates. Five states ban the use of credit stores.
They're not what your driving records should be based on. They have little or no connection to whether you're a safe driver.
Michael DeLong, Consumer Federation of America
While the New Jersey Legislature is considering a bill that would prohibit non-driving factors from auto insurance determinations, Koubiadis said the Department of Banking and Insurance has the authority to change its regulations on its own.
A spokeswoman for the Department of Banking and Insurance said the agency doesn’t comment on pending legislation.
Who pays more?
Michael DeLong, a research associate for the Consumer Federation of America, which advocates for consumers, said they looked at data from the 10 largest auto insurance companies in New Jersey and found consumers with poor credit scores pay an average of $1,300 more a year on their premiums — or 156% — than drivers with good credit scores.
“Huge numbers of people have poor credit because of circumstances beyond their control. You could have a poor credit score because you grew up in a low-income family and didn't have access to credit cards or other financial instruments, you could also have poor credit because you went through a medical crisis and were in a bankruptcy,” DeLong told Gothamist.
Statewide, consumers with excellent credit scores and perfect driving records pay an average annual premium of $842; those with fair credit pay on average $1,384. And those with poor credit pay on average $2,153, according to data acquired by the Consumer Federation of America from Quadrant Information Services.
“It's really unfair because it winds up being a tax on low-income people. They wind up paying more, even though they usually have less,” DeLong said.
The data also show New Jersey drivers living in majority Black or Latino zip codes pay about 50% higher premiums than motorists residing in majority-white zip codes. Delong said Black and Latino residents on average tend to have lower credit scores, lower education levels and lower-paying jobs due to systemic discrimination.
Widens wealth gap
Basing auto insurance policies on those same factors only exacerbates the wealth gap, advocates say.
"The predatory practice of charging Black and brown drivers higher rates based on factors having nothing to do with their driving records is unjustifiable,” Nicole Rodriguez, research director for New Jersey Policy Perspective, said during a rally outside Trenton on Monday.
DeLong said insurance companies have failed to demonstrate how these non-driving factors are connected to driving risks.
“They're not what your driving records should be based on. They have little or no connection to whether you're a safe driver,” he said.
Tony Scimone, a New Brunswick resident, said his car insurance increased more than $3,000 a year and his monthly payments rose from $80 to $374 after he purchased a new car. He said it was because of his credit score.
“My credit score has nothing to do with my driving ability, record, or risk,” he said at the Trenton press conference. “My driving record is excellent, why should my or anyone else’s credit history be used to charge us much more?”
Tagged
car insurance
new jersey
credit
Karen Yi
Karen Yi covers homelessness and poverty. She joined the WNYC and Gothamist newsroom in 2020. Before that, Karen covered Newark for the Star-Ledger and spent almost a decade working for newspapers in New Jersey and Florida. She grew up in Miami and has a dog named Cashew. Got a tip? Email [email protected] or Signal 917-589-1460.
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Gothamist is funded by sponsors and member donations
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