SCOTUS Rules on the Geico and Safeco Cases

You may have already seen the story by now, but in case you haven’t… on Monday, the Supreme Court ruled on the FCRA cases brought against Safeco and Geico, reversing some adverse rulings in those cases.

The best synopsis I’ve seen is at SCOTUSblog. However, my own quick summary (with editorialization) is as follows:

It appears that there were two main points decided:

First, the SCOTUS ruled that the term “willfully” (as in “willfully violated”) should be interpreted as “reckless disregard” rather than “knowingly” or even “carelessly”. In other words, a relatively high bar has been set for determining fineable violations of the FCRA, and industry is protected from being burdened with massive fines for the annoying stupid, non-malicious mistakes that will sometimes happen in any organization. It’s a good stance for the industry, although I could appreciate a consumer advocate argument about a need for there to be some incentive for businesses to take reasonable care to avoid those stupid mistakes.

The more interesting part of the ruling from my point of view / given my credit background is that the Supreme Court has ruled that “adverse action” in insurance terms means an increase from a “neutral rate”, rather than the “not best price” standard that the FTC has advocated.

This is another ruling that’s on-the-surface good for the insurance industry, insomuch as some insurers that followed the “neutral” standard are protected from complaints against the FCRA, and there is a reduction in red tape and hoops that must be jumped through when writing business.

However, personally, I’m not entirely happy with that. (And here, I should re-disclaim that the opinions expressed here are mine, and not those of my employers past or present.) It seems just common sense that if a rating or underwriting decision is being based on records that have some notoriety over the occasional inaccuracy, then the consumer ought to be advised when he/she is not being offered the best possible price, just in case there’s an error in his/her credit report that ought to be corrected.

When crafted correctly, it’s an easy enough notification to make…and it’s one that probably will be ignored anyway, since most folks don’t read the fine print in all their insurance paperwork. But it seems only sporting that an opportunity be explicitly offered to correct any erroneous information.

I don’t seem to be alone in this view. A couple of insurers (Progressive, Travelers) seem to have done a pretty good job about being forthright about their use of credit scoring, and in attempting to arm consumers with information to become educated on the subject.

Also, in many states, the “not best price” standard has been codified in state laws or regulations, which I think (but I’m not a lawyer) remain in force in spite of this ruling.

I’m disappointed in the stance the SCOTUS seems to be taking, but I’m not going to miss the litigation circus that was percolating and which should now be defused.

One other disappointment I have is that had the Supreme Court followed the “not best price” standard, it could have had an impact on the banking industry. The term “adverse action” in the FCRA is not limited to insurance; it’s applicable to any decision made by a user of consumer report information.

Ever since I worked in credit scoring, I was very aware of the lack of adverse action notices accompanying (e.g.) credit card paperwork. If I’m not mistaken, your credit data affects not only whether or not you’re offered a card, it also impacts the interest rate, the credit limit offered…. I even wouldn’t be surprised to learn that credit bureau data affects how aggressively consumers are pursued in the event of delinquency.

It would really suck if consumers weren’t being offered the best possible / most favorable decisions available to them otherwise if there were an error on their credit report…which leads to my belief that any user of credit data ought to disclose the factors influencing their decisions.

Oh well. This just increases the importance of consumers’ regularly pulling their own credit reports to check for errors.