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One More Reason Insurance Companies Shouldn’t Use Credit-Scoring To Set Prices

‘Credit Reports Contain Shocking Number Of Errors’; FTC Says 5% Of Credit Reports Have Errors That Harm Consumers’ Credit Scores; Errors In Medical Billing Compounds Problem Of Medical Debt

credit-report

I’ve identified in previous Michigan Auto Law blog posts all the reasons why car insurance companies shouldn’t be able to charge higher prices to consumers with poor credit, such as:

I now add another reason to the list: Errors in the credit reports that impact credit scores.

John Oliver Roasts Shocking Number of Errors in Credit Reports

In a recent episode of “Last Week Tonight with John Oliver” on HBO, John Oliver took on this epidemic of mistakes and how it effects people and tanks credit scores.

He’s right, of course.

And the worst part about it is that many of these credit errors are serious enough that they can affect and distort a person’s credit score. And, as we know, Michigan is one of the states that legally allows auto insurance companies to use credit scores to calculate premiums that they charge.

So these errors make it more difficult and far more costly for many people to acquire car insurance … and a car and a home and a home loan, and even a job.

In a December 2012 study of the U.S. credit reporting industry, the Federal Trade Commission concluded:

  • “[F]ive percent of consumers [i.e., 1 in 20] had errors on one of their three major credit reports that could lead to them paying more for products such as auto loans and insurance.”
  • “Slightly more than one in 10 consumers saw a change in their credit score after the CRAs modified errors on their credit report …”
  • “Approximately one in 20 consumers had a maximum score change of more than 25 points and only one in 250 consumers had a maximum score change of more than 100 points.”

People injured in car accidents and who have outstanding medical debt hit even harder

But the problem only gets worse when one considers how much medical debt people are carrying these days, and how notoriously inaccurate medical billing can be.

Mr. Oliver says the following about this issue and about medical debt (at 4:36):

“52% of all debt on credit reports is from medical expenses … It seems unfair to judge someone for that. No one chooses to be sick …”

Or to be injured in an automobile accident.

It is even worse for people injured in car accidents. One procedure or surgery at a hospital can result in as many as six different billing entities submitting bills. As a Michigan auto accident attorney, many of my own cases involve what are called first-party auto No Fault cases. Basically, these first-party No Fault cases are lawsuits where I have to sue an auto insurance company for unpaid medical bills or wage loss. It involves my law office having to make dozens of phone calls to sleuth through the opaque mess of medical billing for various medical institutions around the state.

To say I uncover medical billing errors on a regular basis in these cases is an understatement.

Attorneys around Michigan are literally forced to file what are probably unnecessary No Fault insurance lawsuits every week – but we have to in order to protect clients because of these medical billing errors. The problem is also exacerbated by various medical providers who are aggressively pursuing amounts over and above what is reasonable and customary reimbursement and then asking for remainder balances from car accident victims – and then putting these debts on the victims’ credit.

Car accident victims with medical bills effectively get victimized twice, once with the trauma from the injury itself, and the second often with how their credit is affected afterwards.

Using a person’s credit score to determine the price that he or she will pay for car insurance is both unfair and arbitrary.

What to do if you believe your credit score is wrong

One of the first things you should do if you suspect that your credit score is wrong is contact the credit reporting agencies to let them know about any errors and ask that the errors be corrected.

Under Michigan law, auto insurance consumers have certain rights if erroneous credit information has been reported to their auto insurer and/or if their poor credit score is the result of events beyond the person’s control.

To learn more about how to protect yourself in the event that your auto insurer uses credit-scoring to set prices, please check out my blog post, “8 things to know about how Michigan auto insurance companies can use your credit score.”

 

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