Content-type: text/html ~ Stephen's Web ~ Penalizing Poor Credit

Stephen Downes

Knowledge, Learning, Community

Apr 01, 2010

Originally posted on Half an Hour, April 1, 2010.

Responding to David W. Campbell, who defends the practice of using credit scores to determine insurance rates.

The concern is more generally the use of credit scores to evaluate people for things that have nothing to do with credit.

The case of insurance is only the thin edge of the wedge. In the U.S. employers often subject prospective employees to credit checks, and reject those with poor credit.

Applying a means test for the provision of basic needs, such as insurance or jobs, and then structuring the result to discriminate against those most in need, is divisive and dangerous.

It serves to increase, rather than bridge, income disparities in society, and thus propagates the various social ills that result from wide income disparities.

The price of insurance should be the same whether you are rich or poor, and if there is to be a price differentiation, it should most certainly not penalize the poor.

Historically the insurance industry has acted as exactly the opposite of fair and equitable brokers in society.

We have seen this with the health insurance industry in the United States, which has historically refused to insure people living in the wrong location, making the wrong sort of income, or for any of a wide variety of other putative facts that correlate with higher payouts.

We have seen the auto insurance industry in New Brunswick exact significantly higher premiums here than in other provinces not on the basis of any difference in payouts but because the limited competition in a poorer market makes it possible to charge higher premiums. Private industry charges what the market will bear, and poorer regions bear higher prices as a result of lower competition for mandatory insurance.

And while the Cooperators may be better than most insurance companies, on the premium (rather than the ownership) side of things, they function by the same principles as private insurance, which means premiums are based not as much on potential payout but rather on what the market will bear.

Credit checks do not report an insurance-related property of the individual, but the use of credit checks reduces the number of opportunities for people with lower scores to obtain insurance, and this forces up their premiums. It puts people with lower credit scores in a take-it-or-leave-it position.

The tactic is akin to forcing poor people to go to the most expensive doctor in town, because he's the only one who will treat them.

Or forcing (as actually happens) welfare recipients into the most expensive apartments in town, because they are the only ones that will accept welfare recipients.

It is wrong, and should be prohibited.

Stephen Downes Stephen Downes, Casselman, Canada

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