Governor, Auto and Home Insurance Consumer Advocate Applaud Apeals Court Decision that Allows OFIR to Prohibit Use of Credit Scoring

Press Release

Governor, Auto and Home Insurance Consumer Advocate Applaud Apeals Court Decision that Allows OFIR to Prohibit Use of Credit Scoring

Governor Jennifer M. Granholm and Insurance Consumer Advocate Melvin Butch Hollowell today applauded the Michigan Court of Appeal's ruling that allows the state Office of Financial and Insurance Regulation (OFIR) to prohibit insurance companies from using consumers' credit scores as a factor in setting automobile and homeowners insurance rates. Yesterday's ruling by the Court of Appeals vacates a 2005 decision by a Barry County Circuit Court judge that prevented OFIR from prohibiting the use of credit scoring.

"The decision by the Court of Appeals that allows OFIR to prohibit this unfair, illegal practice is great news and an important step in lowering insurance costs for many Michigan residents," Granholm said. "This will squarely impact the pocketbooks of consumers, who once again can expect their insurance rates to be based on actions they take, rather than on unreliable and arbitrary credit scores."

In 2004, Granholm and the OFIR commissioner proposed a new state rule to reduce base rates for all insurance customers by prohibiting the use of credit scoring in determining rates for homeowners and auto insurance sold in Michigan.

In March 2005, after extensive public hearings across the state, the commissioner promulgated these rules. The Insurance Institute of Michigan, the Michigan Insurance Coalition, and several insurers challenged the rules in the Barry County Circuit Court.

On April 25, 2005, Judge James H. Fisher issued an opinion and order declaring the rules invalid and permanently enjoined the commissioner from enforcing them against any plaintiff in the action. The OFIR commissioner immediately appealed Judge Fisher's decision to the Michigan Court of Appeals. Yesterday's ruling vacates Judge Fisher's decision.

Under the state's Essential Insurance Act, discounts for insurance must be based on conduct that reduces losses. In addition, rates must be based on a reasonable classification under the code. The OFIR argued that the use of credit scoring does not meet these requirements.

Hollowell, who was appointed by Granholm in March 2008 to fight for affordable, reliable, and fair auto and home insurance in Michigan, joined Governor Granholm in lauding the Court of Appeals decision.

"This is a real victory for Michigan residents, who now join consumers in California, Maryland, and Alaska in having access to affordable insurance without their credit scores being a factor," Hollowell said. "I am extremely enthusiastic about this ruling, and my office will continue to work on addressing ways to reduce the cost of insurance for residents throughout Michigan."

The Court of Appeal's ruling is effective after the expiration of the time for filing an application for leave to appeal to the Supreme Court, or, if such an application is filed, after the disposition of the case by the Supreme Court. The time for filing an application for leave to appeal in this matter is the first week of October.

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