[Federal Register Volume 70, Number 38 (Monday, February 28, 2005)]
[Notices]
[Pages 9652-9655]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-3781]


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FEDERAL TRADE COMMISSION

RIN [3084-AA94]


Public Comment on Data, Studies, or Other Evidence Related to the 
Effects of Credit Scores and Credit-Based Insurance Scores on the 
Availability and Affordability of Financial Products

AGENCY: Federal Trade Commission.

ACTION: Notice and request for public comment.

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SUMMARY: The Fair and Accurate Credit Transactions Act of 2003 (``FACT 
Act'') or ``Act'') requires the Federal Trade Commission (``FTC'' or 
``Commission'') and the Federal Reserve Board (``Board'') to conduct a 
study on the effects of credit scores and credit-based insurance scores 
on the availability and affordability of financial products. These 
products include credit cards, mortgages, auto loans, and property and 
casualty insurance. As part of its efforts to fulfill its obligations 
under the Act, the FTC seeks public comment on any evidence the FTC and 
the Board should consider in conducting the study.

DATES: Comments must be received by April 25, 2005.

ADDRESSES: Public comments are invited, and may be filed with the 
Commission in either paper or electronic form. Comments filed in paper 
form should refer to ``FACT Act Scores Study'' both in the text and on 
the envelope, to facilitate their organization, and should be mailed or 
delivered to: Federal Trade Commission/Office of the Secretary, Room H-
159 (Annex Z), 600 Pennsylvania Avenue, NW., Washington, DC 20580. The 
FTC requests that any comment filed in paper form be sent by courier or 
overnight service, if possible, because U.S. postal mail in the 
Washington area and at the Commission is subject to delay due to 
heightened security precautions.
    Comments may be filed in electronic form by clicking on the 
following: https://score.commentworks.com/FTCCreditScoreStudy/ and 
following the instructions on the web-based form. If a comment contains 
confidential information, it must be filed in paper (rather than 
electronic) form, and the first page of the document must be clearly 
labeled ``Confidential.'' \1\
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    \1\ Commission Rule 4.2(d), 16 CFR 4.2(d). The comment must also 
be accompanied by an explicit request for confidential treatment, 
including the factual and legal basis for the request, and must 
identify the specific portions of the comment to be withheld from 
the public record. The request will be granted or denied by the 
Commission's General Counsel, consistent with applicable law and the 
public interest. See Commission Rule 4.9(c), 16 CFR 4.9(c).
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    To ensure that the Commission considers an electronic comment, you 
must file it on web-based form at https://secure.commentworks.com/FTTCreditScoreStudy/. You also may visit http://www.regulations.gov to 
read this Notice, and may file an electronic comment through that 
website. The

[[Page 9653]]

Commission will consider all comments that regulations.gov forwards to 
it.
    The FTC Act and other laws the Commission administers permit the 
collection of public comments to consider and use in this proceeding as 
appropriate. All timely and responsive public comments, whether filed 
in paper or electronic form, will be considered by the Commission, and 
will be available to the public on the FTC Web site, to the extent 
practicable, at http://www.ftc.gov. As a matter of discretion, the FTC 
makes every effort to remove home contact information for individuals 
from the public comments it receives before placing those comments on 
the FTC Web site. More information, including routine uses permitted by 
the Privacy Act, may be found in the FTC's privacy policy, at http://www.ftc.gov/ftc/privacy.htm.

FOR FURTHER INFORMATION CONTACT: Jesse Leary, Deputy Assistant 
Director, (202) 326-326-3480, Division of Consumer Protection, Bureau 
of Economics, Federal Trade Commission, 600 Pennsylvania Avenue, NW., 
Washington, DC 20580.

SUPPLEMENTARY INFORMATION:

Background

    The FACT Act was signed into law on December 4, 2005. Fair and 
Accurate Credit Transactions Act of 2003, Pub. L. No. 108-159 (2003). 
In general, the Act amends the Fair Credit Reporting Act (``FCRA'') to 
enhance the accuracy of consumer reports and to allow consumers to 
exercise greater control regarding the type and amount of marketing 
solicitations they receive. The Act contains a number of provisions 
intended to combat consumer fraud and related crimes, including 
identity theft, and to assist its victims. Finally, the Act requires 
that a number of studies be conducted on credit reporting and related 
issues.
    Section 215 of the FACT Act requires the FTC and the Board, in 
consultation with the Office of Fair Housing and Equal Opportunity of 
the Department of Housing and Urban Development, to conduct a study on 
the effects of credit scores and credit-based insurance scores on the 
availability and affordability of financial products. These products 
include mortgages, auto loans, credit cards, and property and casualty 
insurance. Section 215 further requires the FTC and the Board to study: 
(1) ``the statistical relationship, utilizing a multivariate analysis 
that controls for prohibited factors under the Equal Credit Opportunity 
Act and other known risk factors, between credit scores and credit-
based insurance scores and the quantifiable risks and actual losses;'' 
and (2) ``the extent to which, if any, the use of credit scoring 
models, credit scores, and credit-based insurance scores impact on the 
availability and affordability of credit to the extent information is 
currently available or is available through proxies, by geography, 
income, ethnicity, race, color, religion, national origin, age, sex, 
marital status, and creed, including the extent to which the 
consideration or lack of consideration of certain factors by credit 
scoring systems could result in negative or differential treatment of 
the protected classes, under the Equal Credit Opportunity Act, and the 
extent to which, if any, the use of underwriting systems relying on 
these models could achieve comparable results through the use of 
factors with less negative impact.''
    The study is due on December 4, 2005.

II. Request for Comments

    The Act requires the FTC to seek public input about ``the 
prescribed methodology and research design of the study.'' As part of 
its efforts to fulfill its obligations under the Act, the FTC, (in a 
Federal Register notice dated June 18, 2004, see 69 FR 34167) sought 
public comment on methodological aspects of the study. The FTC received 
comments in response to that notice, and the FTC and the Board are 
considering them as they conduct the study. In the present request, the 
FTC seeks comment on specific studies, data, or other evidence that 
might be useful for the study. Although we enumerate a set of questions 
below, we encourage commenters to provide information on any aspects of 
credit scores, credit-based insurance scores, and the effects of scores 
on the relevant markets that would be useful to the study. In 
particular, the FTC seeks information that bears on the following 
questions:

A. Credit Scores and Credit:

    1. Specifically, how are credit scoring models developed? Who 
develops credit scoring models? What data and methodologies are used to 
develop credit scoring models? What factors are used in credit scoring 
models? Why are those factors used? What other factors have been 
considered for use in credit scoring models, but are not used? Why are 
those other factors not used? Are there benefits or disadvantages, 
either to creditors or consumers, from the use of particular factors by 
credit scoring models?
    2. How many different credit scoring models are in use today? What 
different types of general purpose or specialized credit scoring models 
are available? Who offers credit scores?
    3. How are credit scores used? Who uses credit scores, and how 
widely are they used? How do they fit into the underwriting process for 
mortgages, auto loans, credit cares, and other credit products? For 
what purposes are credit scores used, other than the initial 
underwriting or pricing decision?
    4. How has the use of credit scores changed over time? When were 
the first used for each type of financial product (credit cards, 
mortgages, auto loans, etc.)? How has their use expanded to encompass 
different groups of borrowers (e.g., lower income borrowers, urban/
rural borrowers, borrowers with poor credit histories, borrowers with 
non-traditional credit histories)? If the use of credit scores has 
expanded to encompass different groups of borrowers, how has this 
affected the price or availability of credit to those borrowers?
    5. Has the use of credit scores affected the price and availability 
of mortgages, auto loans, credit cards, or other credit products? If 
so, are there estimates of the type and size of such changes? Have some 
groups of consumers experienced cost reduction while others have 
experienced cost increases? Have some groups of consumers experienced 
greater access to credit while others have experienced reduced access?
    6. Has the use of credit scores affected the amount of credit made 
available to consumers? Has it affected initial loans-to-value ratios 
at which auto loans or mortgages (first- or second-lien) are originated 
to different groups of borrowers? Has it affected credit limits on 
credit cards and home equity lines of credit for different groups of 
borrowers?
    7. How has the use of credit scores affected the costs of 
underwriting and/or the time needed to underwrite?
    8. What impact has the use of credit scores had on the accuracy of 
underwriting decisions? What impact has the use of credit scores had on 
the share of applicants that are approved for mortgages, auto loans, 
credit cards, or other credit products? What impact has the use of 
credit scores had on the default rates of mortgages, auto loans, credit 
cards, or other credit products? Have the sizes of such changes or 
effects been estimated and reported?
    9. Has the use of credit scores affected the cost and availability 
of credit to consumers with poor credit histories? If so, how? What 
effect has it had on the use of credit by consumers with poor credit 
histories?
    10. How has the use of credit scores affected the cost and 
availability of credit to consumers with no credit

[[Page 9654]]

history? What effect has it had on the use of credit by consumers with 
no credit history?
    11. How has the use of credit scores affected refinancing behavior 
for mortgage, auto, or student loans? How has it affected the average 
life of revolving lines of credit (including credit cards)?
    12. Has the use of credit scores and credit scoring models impacted 
the availability or cost of credit to consumers by geography, income, 
ethnicity, race, color, religion, national origin, age, sex, marital 
status, or creed? If so, how has it impacted each such category? What 
are the estimated sizes of any such changes for each of the above 
categories?
    13. To what extent does consideration or lack of consideration of 
certain factors by credit scoring systems result in negative or 
differential treatment of those categories of consumers who are 
protected under the Equal Credit Opportunity Act (``ECOA'') (e.g., 
race, color, religion, national origin, sex, age, and marital status)?
    14. To what extent, if any, could the use of underwriting systems 
that rely on scoring models achieve comparable results through the use 
of factors with less negative impact on those categories of consumers 
who are protected under ECOA?
    15. What steps, if any, do score developers, lenders, or other 
users of credit scores take to ensure that the use of credit scores 
does not result in negative or differential treatment of protected 
categories of consumers under the ECOA? Have score developers, lenders, 
or other users of credit scores changed the way credit scores are 
developed or used in order to avoid negative of differential treatment 
of protected categories of consumers under the ECOA? Are any particular 
credit history factors not used because of actual or potential negative 
or differential treatment of protected categories of consumers under 
the ECOA? If so, what are they?
    16. Has the use of credit scores caused a change in the rate of 
home ownership? What is the estimated size of such a change?
    17. Has the use of credit scores caused a change in the method and 
amount of pre-screening consumers for credit offers? What effects has 
this had on the terms offered to consumers?
    18. What specific role do credit scores play in granting ``instant 
credit?'' What impact have credit scores had on the availability and 
use of instant credit?
    19. How has the use of credit scores affected companies' ability to 
enter new lines of business or expand activities in the various credit 
industries?
    20. What role does credit scoring play in secondary market 
activities? In what ways has the availability of credit scores affected 
the development of the secondary market for credit products? Has the 
use of credit scoring increased or decreased creditors' access to 
capital? In what ways?
    21. How are credit scores used to manage existing credit accounts, 
such as credit card accounts? How has the use of credit scores affected 
the way credit accounts are managed? How are credit scores used in the 
servicing of mortgages, and how has the use of credit scores affected 
the way mortgages are serviced?
    22. How are records of inquiries used by credit scoring systems? 
Does concern about the possible effects on their credit scores affect 
consumers' credit-shopping behavior? If so, what impact does this have 
on the consumers or on competition in the various credit markets?
    23. How does the use of credit scores affect consumers with 
inaccurate information on their credit reports? How does the use of 
credit scores affect consumers who have been the victims of identity 
theft?
    24. Are there particular forms of inaccuracy or incompleteness in 
the credit reporting system, such as incomplete reporting by creditors, 
that affect either the usefulness of credit scores to lenders or the 
benefits or disadvantages of scoring to consumers? What are those types 
of inaccuracies or incompleteness? How do they affect the usefulness of 
credit scores to lenders or the benefits or disadvantages of scoring to 
consumers?

B. Credit-Based Insurance and Property and Casualty Insurance

    1. Specifically, how are credit-based insurance scoring models 
developed? Who develops credit-based insurance scoring models? What 
data and methodologies are used to develop credit-based insurance 
scoring models? What factors are used in credit-based insurance scoring 
models? Why are those factors used? What other factors have been 
considered for use in credit-based insurance scoring models, but are 
not used? Why are those other factors not used? Are there benefits or 
disadvantages, either to insurers or consumers, from the use of 
particular factors by credit-based insurance scoring models?
    2. How many different credit-based insurance scoring models are in 
use today? Who offers credit-based insurance scores?
    3. How are credit-based insurance scores used? Who uses credit-
based insurance scores, and how widely are they used? How do they fit 
into the underwriting and rating process for automobile and homeowners 
insurance?
    4. Has the use of credit-based insurance scores affected the price 
and availability of automobile and homeowners insurance? We are 
especially interested in evidence containing estimates of the size of 
such changes. Have some groups of consumers experienced cost reductions 
while others have experienced cost increases? If so, which consumers 
have experienced reductions and which have experienced increases, and 
what are the magnitudes of those changes? Have some consumers 
experienced dramatic increases in their insurance premiums, solely as 
the result of the introduction of credit-based insurance scoring? If 
so, what has been the impact of this rise in premiums on these 
consumers?
    5. How has the use of credit-based insurance scores affected the 
costs of underwriting and rating and/or the time needed to underwrite 
and rate?
    6. How has the use of credit-based insurance scores affected the 
accuracy of underwriting and rating decisions? Have the sizes of such 
changes been estimated and reported?
    7. Has the use of credit-based insurance scores affected the amount 
of automobile or homeowners insurance purchased by consumers? Has it 
affected the limits or deductibles that consumers select when 
purchasing automobile or homeowners insurance? Has it affected the 
number of drivers who drive without insurance? Has it affected the 
number of homeowners that have no homeowners insurance? What are the 
estimated sizes of such changes?
    8. How has the use of credit-based insurance scores affected the 
cost and availability of automobile or homeowners insurance to 
consumers with poor credit histories? What effect has it had on the 
purchasing of automobile or homeowners insurance by consumers with poor 
credit histories?
    9. Has the use of credit-based insurance scores affected the cost 
and availability of automobile or homeowners insurance to consumers 
with no credit history? If so, how? What effect has it had on the 
purchasing of automobile or homeowners insurance by consumers with no 
credit histories?
    10. How has the use of credit-based insurance scores impacted the 
availability of cost of insurance to consumers by geography, income, 
ethnicity, race, color, religion, national origin, age, sex, marital 
status, or creed?

[[Page 9655]]

 What are the estimated sizes of such changes for each of the above 
categories?
    11. To what extent does consideration or lack of consideration of 
certain factors by credit-based insurance scoring systems result in 
negative or differential treatment of protected classes of consumers, 
that is, the same categories of consumers against whom discrimination 
is prohibited under the ECOA (e.g. race, color, religion, national 
origin, sex, age, and marital status)?
    12. To what extent, if any, could the use of underwriting systems 
relying on credit-based insurance scoring models achieve comparable 
results through the use of factors with less negative impact on 
consumer sin the ECOA protected categories?
    13. What steps, if any, do score developers or insurance companies 
take to ensure that the use of credit-based insurance scores does not 
result in negative or differential treatment of protected categories of 
consumers listed in the ECOA? Are any particular credit history factors 
not used because of actual or potential negative or differential 
treatment of protected categories of consumers listed in the ECOA? If 
so, what are they?
    14. Has the use of credit-based insurance scores caused a change in 
the method and amount of pre-screening consumers for insurance offers? 
What effects has this had on the terms offered to consumers?
    15. How has the use of credit-based insurance scores affected 
companies' ability to enter new lines of the automobile or homeowners 
insurance business?
    16. If the use of credit-based insurance scores has affected the 
costs individual consumers pay for insurance, has it (i) caused a 
change in the overall average cost of insurance for consumers?; (ii) 
changed the distribution of individual costs?; or (iii) caused any 
other change in the costs to consumers? What are the magnitudes of any 
such changes?
    17. Would an analysis of the share or number of consumers that 
purchase automobile or homeowners insurance from ``involuntary,'' 
``pooled risk,'' ``assigned risk,'' or other types of insurance other 
than insurance offered on a voluntary basis by private insurers, be 
informative about the price and/or availability of automobile or 
homeowners insurance? Would an analysis of the share of drivers that 
drive without automobile insurance be informative about the price and/
or availability of automobile insurance?
    18. What impact, if any, does banning or limiting the use of 
particular underwriting or rating factors, such as gender, territory, 
or credit-based insurance score, have on the price or availability of 
automobile or homeowners insurance? Has the prohibition on the use of 
credit-based scores for insurance in particular states had any impact 
on the price or availability of automobile or homeowners insurance for 
consumers in those states? If so, what has that impact been? If the use 
of credit-based insurance scores was not allowed in additional states, 
what impact would this have on the price or availability of automotive 
or homeowners insurance? Are there, or would there be, any specific 
effects on those insurance consumers who are within protected 
categories listed in the ECOA?
    19. How are records of inquiries used by credit-based insurance 
scoring systems? Does concern about the possible effects on their 
credit-based insurance scores affect consumers' insurance-shopping 
behavior? If so, what impact does this have on competition in the 
insurance markets?
    20. How does the use of credit-based insurance scores affect 
consumers with inaccurate information on their credit reports? How does 
the use of credit-based insurance scores affect consumers who have been 
the victims of identity theft?
    21. Are there particular forms of inaccuracy or incompleteness in 
the credit reporting system, such as incomplete reporting by creditors, 
that affect either the usefulness of credit-based insurance scores to 
insurers or the benefits or disadvantages of scoring to consumers? What 
are those types of inaccuracies or incompleteness? How do they affect 
the usefulness of credit-based insurance scores to insurers or the 
benefits or disadvantages of scoring to consumers?

    Authority:  Sec. 112(b), Pub. L. 108-159, 117 Stat. 1956 (15 
U.S.C. 1681c-1).

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 05-3781 Filed 2-25-05; 8:45 am]
BILLING CODE 6750-01-M