If car insurance is magnatory then why do they make laws to penalize people that have bad credit?
People are strapped as it is because of the gas situation so in order to just get to work to go to thier meager wage jobs they have had a hard time paying thier bills so they may have charged the difference. Now a lot of good working class people have gotten in over their heads with credit cards, but insurance companies now are taking advantage of people in a hardship situation. They make it harder on people because they can leagally raise your rates without you knowing adding insult to injury another outragous payment which no one cold afford when wages have never gone up to meet the cost of living. So what are people suposed to do? Are there any laws to protect people with bad credit?
I am unaware of laws requiring insurance companies to penalize people with bad credit. There are laws in some states that forbid it, at least in name.
Many states have passed a form of the Essential Insurance Act, which prohibits insurers from using credit reports to set rates. Unfortunately, some states have been quite lax in enforcing these laws.
I feel your pain. I challenged this practice in my home state in a class action lawsuit. The federal court ruled that the Essential Insurance Act failed to provide a remedy for its violation–essentially that the insurance companies can violate the act without being responsible. It is a damn shame.
I’m lost. What does car insurance have to do with bad credit?
By the way, the word you’re looking for is mandatory.
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Word of advice, don’t live beyond your means and you’ll have nothing to worry about.
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I am unaware of laws requiring insurance companies to penalize people with bad credit. There are laws in some states that forbid it, at least in name.
Many states have passed a form of the Essential Insurance Act, which prohibits insurers from using credit reports to set rates. Unfortunately, some states have been quite lax in enforcing these laws.
I feel your pain. I challenged this practice in my home state in a class action lawsuit. The federal court ruled that the Essential Insurance Act failed to provide a remedy for its violation–essentially that the insurance companies can violate the act without being responsible. It is a damn shame.
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Michigan’s court of appeals has just prohibited insurance companies from using credit scores to determine insurance rates. The insurance companies will appeal but we expect them to lose.
The court’s reasoning was that since most of those with poor credit are minorities, it is discriminatory to charge them higher rates.
I think the court ducked the real issue here but the result will be the same..
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That does seem unfair. It should be based on your driving record, not your credit record. It's not like they have anything to lose if you have bad financial credit because all they have to do if you fail to pay is cancel your insurance and then you can't drive until you can find a new one. The only thing I can guess, is if that happens so often to a particular individual, then maybe the insurance company has to spend more time when they cancel your insurance and that takes time and therefore money. But I agree, that seems wrong. The driving record should be the only thing that matters because if you are a bad driver, you are more likely to get in an accident and they have to pay for that. All other issues should not be factored in when the law requires it for other reasons.
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I have only one loan, my house people who abuse credit are always blaming someone else. l don’t have l-pods playstations big screen TVs new vehicle’s not because I don’t want some of these things but l save up cash for what l want. I get a good price on insurance by paying for the whole thing up front. while l agree it’s not normal because credit is so easy to get the thought of paying an extra 21% on over priced crap makes me the way l am
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Insurance companies have been using credit ratings (as one of many factors) in insurance rating for years. Long before the most recent economic recession.
States require insurance because it is in the public interest that there be a financial structure in place to pay people that you hurt or property that you damage because of your negligence.
Insurance companies are a business. Not a charity.
The grocery store is a business – not a charity. But you're not demanding that all the grocery stores lower their prices because this economy is hard on people. And if you don't have food to eat you will die! So it's ok for the grocery store to charge competitive prices for the products they sell, but the insurance company is supposed to act like a charity and sell you insurance for lower than the market rate.
So, if paying for your car insurance is such a hardship — then you need to consider cutting out the luxuries in your life.
Cell phone- luxury. There is no legal requirement to have a cell phone. There is no harm to the public good if you don't have a cell phone. It's a "want" not a "must have". So if money is that tight – cut off the cell phone. At the very least, cut your plan to a basic plan and only use that phone when you need to call 911.
Cable – another "want" – get rid of it.
Internet – another "want" – get rid of it or go back to 10 per month dial up.
Eating out- another "want" – stop that.
See my point. If money is that tight – there are lots of places you can make changes.
Insurance is priced based on "risk". What is the likelihood that you will have a claim? Statistics show that those with bad credit ratings are more likely to file a claim. Therefore, they are charged a higher rate because there is more "risk" involved.
Insurance is a financial product. Like other financial products -credit is factored in.
Why are you not complaining that banks treat you unfairly because they charge a person with bad credit a higher interest rate than people with good credit? Those credit cards that you ran up— the interest rate you pay on those is tied to your FICO score. So people with bad FICO scores pay more interest than people with good FICO scores.
Employers frequently run credit checks on prospective employees. A bad credit score will prevent you from getting a job. Why are you not complaining about employers using credit as a factor in determining who to hire?
There are no laws to protect people with bad credit. People with bad credit got that bad credit because they made poor financial decisions and ruined their own credit scores.
Sorry – but actions have consequences. And when you are not responsible with your credit — it affects your life in a lot of ways.
If you are in a bad financial position — Dave Ramsey is a financial counselor that helps people get out debt. You can catch his radio program on the local talk radio station (and that is free). You can also purchase his book "The Total Money Makeover". You can pay off your debt, improve your financial position — but you have to have a plan and it's going to take a lot of work.
Good Luck
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The Professor is right. If your state has passed a version of the Essential Insurance Act, your insurer may be breaking the law if they are considering your credit score in setting rates.
Gentle Giant is almost right. The Michigan Court of Appeals recently ruled that the Insurance Commissioner can enforce the Essential Insurance Act. This is not the same thing as the Court finding that pricing based upon credit reports is illegal. The Court simply upheld the law the state legislature wrote. We will see whether Michigan's whacky Supreme Court (which appears to be in the pocket of the insurance industry) goes along, but I do not share Gentle Giant's optimism.
Contact your state's insurance commissioner and start asking questions.
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