"Junk Mail" and why Consumers are getting a Raw Deal with Auto Insurance Rates

Auto insurance companies can raise your rates on your auto loans without informing you ahead of time. This has been a practice that federal regulation has done nothing about. The Fair Credit Reporting Act requires most companies to send a letter called a notice of adverse action to the consumer if the consumer was penalized due to a low credit score.

A group of consumers sued insurance giants Safeco and Geico and won based on this unfair practice. The case appealed all of the way up to the Supreme Court was recently reversed.

Now the reasoning for reversal really leaves you scratching your head. Justice David Souters' reasoning was that it created too much “junk mail.” He did admint it was a loophole in the system. However, he stated that the cost of closing the loophole was way too high.

So, our Supreme Court is protecting us from junk mail and allowing auto insurance companies to get away with raising rates on insurance based on some obscure credit scoring system? The cost for making it a fair system is too high? Who is it to high for?

It is a good thing that the Supreme Court is there to protect the insurance industry. It would be a shame for the industry to be forced to make a little less money sending out those “junk mail” notices to make the system work better for the consumer.

They did allow for a system to where a certain group of people would be notified. However, the system is determined and controlled by the insurance industry. Thus this is more of a smoke and mirrors fix.

Why would it be beneficial for consumers to know about the credit scoring? First, consumers should know the benchmark. A consumer should know that insurance rates would come down if credit scores were below a certain level. Second, many credit scores are low simply due to error. Statistics would show that a high percentage of consumers have enough mistakes on their credit reports to adversely effect their credit scores.

Politics are a way of life. Blatant politics are another story. When the reasoning for reversing a case that would help consumers was based on a “junk mail” problem, something else is obviously going on.