CHAPTER 559. CREDIT SCORING AND CREDIT INFORMATION - Texas Statutes

INSURANCE CODE

TITLE 5. PROTECTION OF CONSUMER INTERESTS

SUBTITLE C. DECEPTIVE, UNFAIR, AND PROHIBITED PRACTICES

CHAPTER 559. CREDIT SCORING AND CREDIT INFORMATION

SUBCHAPTER A. GENERAL PROVISIONS

Sec. 559.001. DEFINITIONS. In this chapter:

(1) "Adverse effect" means an action taken by an insurer in

connection with the underwriting of insurance for a consumer that

results in the denial of coverage, the cancellation or nonrenewal

of coverage, or the offer to and acceptance by a consumer of a

policy form, premium rate, or deductible other than the policy

form, premium rate, or deductible for which the consumer

specifically applied.

(2) "Agent" means a person licensed or required to be licensed

as a general property and casualty insurance agent or a personal

lines property and casualty agent under Chapter 4051.

(3) "Applicant for insurance coverage" means an individual who

has applied to an insurer for coverage under a personal insurance

policy.

(4) "Consumer" means an individual whose credit information is

used or whose credit score is computed in the underwriting or

rating of a personal insurance policy. The term includes an

applicant for insurance coverage.

(5) "Consumer reporting agency" means any person that, for

monetary fees or dues or on a cooperative nonprofit basis,

regularly engages in the practice of assembling or evaluating

consumer credit information or other information on consumers for

the purpose of furnishing consumer reports to third parties.

(6) "Credit information" means any credit-related information

derived from a credit report, found in a credit report itself, or

provided in an application for personal insurance. The term does

not include information that is not credit-related, regardless of

whether that information is contained in a credit report or in an

application for insurance coverage or is used to compute a credit

score.

(7) "Credit report" means any written, oral, or other

communication of information by a consumer reporting agency that:

(A) bears on a consumer's creditworthiness, credit standing, or

credit capacity; and

(B) is used or expected to be used or collected in whole or in

part to serve as a factor to determine personal insurance

premiums, eligibility for coverage, or tier placement.

(8) "Credit score" or "insurance score" means a number or rating

derived from an algorithm, computer application, model, or other

process that is:

(A) based on credit information; and

(B) used to predict the future insurance loss exposure of a

consumer.

(9) "Insured" means a consumer who has purchased an insurance

policy from an insurer.

(10) "Insurer" means an insurer authorized to write property and

casualty insurance in this state, including an insurance company,

reciprocal or interinsurance exchange, mutual insurance company,

capital stock company, county mutual insurance company,

association, Lloyd's plan, or other entity writing personal

insurance in this state. The term includes an affiliate, as

described by this code, if that affiliate is authorized to write

personal insurance in this state. The term does not include a

farm mutual insurance company or an eligible surplus lines

insurer under this code.

(11) "Personal insurance" means:

(A) a personal automobile insurance policy;

(B) a residential property insurance policy;

(C) a residential fire and allied lines insurance policy; or

(D) a noncommercial insurance policy covering a boat, personal

watercraft, snowmobile, or recreational vehicle.

Added by Acts 2005, 79th Leg., Ch.

728, Sec. 11.020(a), eff. September 1, 2005.

Amended by:

Acts 2007, 80th Leg., R.S., Ch.

548, Sec. 2.05, eff. September 1, 2007.

Sec. 559.002. APPLICABILITY OF CHAPTER. This chapter applies to

an insurer that writes personal insurance coverage and uses

credit information or credit reports for the underwriting or

rating of that coverage.

Added by Acts 2005, 79th Leg., Ch.

728, Sec. 11.020(a), eff. September 1, 2005.

Sec. 559.003. INFORMATION PROVIDED TO PUBLIC. The department

shall:

(1) update insurer profiles maintained on the department's

Internet website to provide information to consumers stating

whether or not an insurer uses credit scoring; and

(2) post the report required under former Section 15, Article

21.49-2U, on the department's Internet website.

Added by Acts 2005, 79th Leg., Ch.

728, Sec. 11.020(a), eff. September 1, 2005.

Sec. 559.004. RULES. (a) The commissioner may adopt rules

necessary to implement this chapter.

(b) The commissioner shall adopt rules that prescribe the

allowable differences in rates charged by insurers due solely to

the difference in credit scores.

Added by Acts 2005, 79th Leg., Ch.

728, Sec. 11.020(a), eff. September 1, 2005.

SUBCHAPTER B. USE OF CREDIT SCORING AND CREDIT INFORMATION

Sec. 559.051. PERMISSIBLE USE OF CREDIT SCORING. An insurer may

use credit scoring, except for factors that constitute unfair

discrimination, to develop rates, rating classifications, or

underwriting criteria regarding lines of insurance subject to

this chapter.

Added by Acts 2005, 79th Leg., Ch.

728, Sec. 11.020(a), eff. September 1, 2005.

Sec. 559.052. PROHIBITED USE OF CREDIT INFORMATION. (a) An

insurer may not:

(1) use a credit score that is computed using factors that

constitute unfair discrimination;

(2) deny, cancel, or nonrenew a policy of personal insurance

solely on the basis of credit information without considering any

other applicable underwriting factor independent of credit

information; or

(3) take an action that results in an adverse effect against a

consumer because the consumer does not have a credit card account

without considering any other applicable factor independent of

credit information.

(b) An insurer may not consider an absence of credit information

or an inability to determine credit information for an applicant

for insurance coverage or for an insured as a factor in

underwriting or rating an insurance policy unless the insurer:

(1) has statistical, actuarial, or reasonable underwriting

information that:

(A) is reasonably related to actual or anticipated loss

experience; and

(B) shows that the absence of credit information could result in

actual or anticipated loss differences;

(2) treats the consumer as if the applicant for insurance

coverage or insured had neutral credit information, as defined by

the insurer; or

(3) excludes the use of credit information as a factor in

underwriting and uses only other underwriting criteria.

Added by Acts 2005, 79th Leg., Ch.

728, Sec. 11.020(a), eff. September 1, 2005.

Sec. 559.053. DISCLOSURE TO CONSUMER REGARDING USE OF CREDIT

SCORING. (a) An insurer that uses credit scoring in the

underwriting or rating of insurance subject to this chapter shall

disclose to each applicant for insurance coverage that the

applicant's credit report may be used in the underwriting or

rating of the applicant's policy. The disclosure must be

provided at the time of application by the insurer or agent and

may be given orally, in writing, or electronically.

(b) If a policy is issued to the applicant for insurance

coverage, an insurer or agent is not required to make the

disclosure required under Subsection (a) on any subsequent

renewal of the coverage.

(c) An insurer or its agent shall disclose to its customers, on

a form adopted by the commissioner, whether credit information

will be obtained on an applicant for insurance coverage or

insured or on any other member or members of the applicant's or

insured's household and used as part of the insurance credit

scoring process.

(d) If credit information is obtained or used on an applicant

for insurance coverage or insured, or on any member of the

applicant's or insured's household, the insurer shall disclose to

the applicant or insured the name of each person on whom credit

information was obtained or used and how each person's credit

information was used to underwrite or rate the policy.

Added by Acts 2005, 79th Leg., Ch.

728, Sec. 11.020(a), eff. September 1, 2005.

Sec. 559.054. NOTICE OF ACTION RESULTING IN ADVERSE EFFECT. (a)

If, based in whole or in part on information contained in a

credit report, an insurer takes an action resulting in an adverse

effect with respect to an applicant for insurance coverage or

insured, the insurer shall provide to the applicant or insured

within 30 days:

(1) written or electronic notice of the action resulting in an

adverse effect and the reasons for that action;

(2) the name, address, and telephone number of the consumer

reporting agency, including a toll-free number established by the

agency and the agency's Internet website, if applicable;

(3) written or electronic notice that the consumer reporting

agency did not make the decision to take the action resulting in

an adverse effect and will be unable to provide the applicant or

insured the specific reasons why the action was taken; and

(4) written or electronic notice of the applicant's or insured's

right to:

(A) obtain a free copy of the consumer's credit report from the

consumer reporting agency during the 60-day period after the date

of the notice; and

(B) dispute with the consumer reporting agency the accuracy or

completeness of any information in the consumer's credit report

furnished by the agency.

(b) In the notice described by Subsection (a)(1), an insurer

shall include a description of not more than four factors that

were the primary influences of the action resulting in the

adverse effect.

(c) The use by an insurer of a generalized term such as "poor

credit history," "poor credit rating," or "poor credit score"

does not constitute sufficient notice under this section of the

action resulting in the adverse effect.

(d) Standardized credit explanations provided by a consumer

reporting agency or other third-party vendor are also sufficient

to comply with this section.

Added by Acts 2005, 79th Leg., Ch.

728, Sec. 11.020(a), eff. September 1, 2005.

Sec. 559.055. DISPUTE RESOLUTION; ERROR CORRECTION. (a) If it

is determined through the dispute resolution process established

under Section 611(a)(5), Fair Credit Reporting Act (15 U.S.C.

Section 1681i), as amended, that the credit information of a

current insured was inaccurate or incomplete or could not be

verified and the insurer receives notice of that determination

from the consumer reporting agency or from the insured, the

insurer shall re-underwrite and re-rate the insured not later

than the 30th day after the date the insurer receives the notice.

(b) After re-underwriting or re-rating an insured under

Subsection (a), an insurer shall make any adjustments necessary

within 30 days, consistent with the insurer's underwriting and

rating guidelines. If an insurer determines that the insured has

overpaid premium, the insurer shall credit the insured the amount

of overpayment. The insurer shall compute the overpayment back

to the shorter of:

(1) the last 12 months of coverage; or

(2) the actual policy period.

Added by Acts 2005, 79th Leg., Ch.

728, Sec. 11.020(a), eff. September 1, 2005.

Sec. 559.056. INDEMNIFICATION OF AGENT. (a) An insurer shall

indemnify, defend, and hold its agent harmless from and against

all liability, fees, and costs that arise out of or relate to the

actions, errors, or omissions of an agent who obtains or uses

credit information or credit scores for the insurer if the agent:

(1) follows the instructions of or procedures established by the

insurer; and

(2) complies with any applicable law or rule.

(b) This section may not be construed to establish a cause of

action that does not exist in the absence of this section.

Added by Acts 2005, 79th Leg., Ch.

728, Sec. 11.020(a), eff. September 1, 2005.

Sec. 559.057. SALE OF POLICY TERM INFORMATION BY CONSUMER

REPORTING AGENCY PROHIBITED. (a) A consumer reporting agency

may not provide or sell data or lists that include any

information that, in whole or in part, was submitted in

conjunction with an insurance inquiry about a consumer's credit

information or a request for a credit report or credit score,

including:

(1) the expiration dates of an insurance policy or any other

information that may identify periods during which a consumer's

insurance may expire; and

(2) the terms and conditions of the consumer's insurance

coverage.

(b) The restriction under Subsection (a) does not apply to data

or lists that the consumer reporting agency provides to:

(1) the agent from whom information was received;

(2) the insurer on whose behalf the agent acted; or

(3) that insurer's affiliates.

(c) This section may not be construed to restrict the ability of

an insurer to obtain a claims history report or a report

regarding a motor vehicle.

Added by Acts 2005, 79th Leg., Ch.

728, Sec. 11.020(a), eff. September 1, 2005.

SUBCHAPTER C. COMPUTING CREDIT SCORE; EVALUATING CREDIT

INFORMATION

Sec. 559.101. NEGATIVE FACTORS. An insurer may not use any of

the following as a negative factor in any credit scoring

methodology or in reviewing credit information to underwrite or

rate a policy of personal insurance:

(1) a credit inquiry that is not initiated by the consumer;

(2) an inquiry relating to insurance coverage, if so identified

on a consumer's credit report; or

(3) a collection account with a medical industry code, if so

identified on the consumer's credit report.

Added by Acts 2005, 79th Leg., Ch.

728, Sec. 11.020(a), eff. September 1, 2005.

Sec. 559.102. MULTIPLE LENDER INQUIRIES. (a) An insurer shall

consider multiple lender inquiries made within 30 days of a prior

inquiry, if coded by the consumer reporting agency on the

consumer's credit report as from the home mortgage industry, as

only one inquiry.

(b) An insurer shall consider multiple lender inquiries made

within 30 days of a prior inquiry, if coded by the consumer

reporting agency on the consumer's credit report as from the

motor vehicle lending industry, as only one inquiry.

Added by Acts 2005, 79th Leg., Ch.

728, Sec. 11.020(a), eff. September 1, 2005.

Sec. 559.103. EXTRAORDINARY EVENTS. (a) Notwithstanding any

other law, an insurer shall, on written request from an applicant

for insurance coverage or an insured, provide reasonable

exceptions to the insurer's rates, rating classifications, or

underwriting rules for a consumer whose credit information has

been directly influenced by:

(1) a catastrophic illness or injury;

(2) the death of a spouse, child, or parent;

(3) temporary loss of employment;

(4) divorce; or

(5) identity theft.

(b) In a situation described by Subsection (a), an insurer:

(1) may consider only credit information not affected by the

event; or

(2) shall assign a neutral credit score.

(c) An insurer may require reasonable written and independently

verifiable documentation of the event and the effect of the event

on the person's credit before granting an exception. An insurer

is not required to consider repeated events or events the insurer

reconsidered previously as an extraordinary event.

(d) An insurer may also consider granting an exception to an

applicant for insurance coverage or an insured for an

extraordinary event not listed in Subsection (a).

(e) An insurer is not out of compliance with any law or rule

relating to underwriting, rating, or rate filing as a result of

granting an exception under this section.

Added by Acts 2005, 79th Leg., Ch.

728, Sec. 11.020(a), eff. September 1, 2005.

SUBCHAPTER D. FILING OF CREDIT SCORING MODELS

Sec. 559.151. FILING REQUIRED. (a) An insurer that uses credit

scores to underwrite and rate risks shall file the insurer's

credit scoring models or other credit scoring processes with the

department.

(b) Another entity may file credit scoring models on behalf of

an insurer.

(c) A filing that includes credit scoring may include loss

experience justifying the use of credit information.

Added by Acts 2005, 79th Leg., Ch.

728, Sec. 11.020(a), eff. September 1, 2005.

Sec. 559.152. PUBLIC INFORMATION. A credit scoring model filed

to comply with this chapter, as of the date the filing is

received by the department:

(1) is public information;

(2) is not subject to any exceptions to disclosure under Chapter

552, Government Code; and

(3) cannot be withheld from disclosure under any other law.

Added by Acts 2005, 79th Leg., Ch.

728, Sec. 11.020(a), eff. September 1, 2005.

SUBCHAPTER E. ENFORCEMENT

Sec. 559.201. VIOLATION. An insurer that violates this chapter

or a rule adopted under this chapter commits an unfair practice

in violation of Chapter 541 and is subject to sanctions under

Chapter 82.

Added by Acts 2005, 79th Leg., Ch.

728, Sec. 11.020(a), eff. September 1, 2005.