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Citing racial inequities, WA insurance commissioner pushes to end use of credit scoring to set rates

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How much you pay for auto, home and renters insurance depends a lot on your credit score. If your credit is good, you tend to pay less. If it’s not so good, you likely pay more.

Now, Washington Insurance Commissioner Mike Kreidler wants to ban the use of credit-based insurance scoring to set rates. He says it’s a matter of racial justice. 

“I’ve known for years, it’s been well-documented that this had a disparate impact,” said Kreidler, noting that insurance scoring has been used since the late 1980s.

Kreidler, a six-term Democrat, first proposed a ban on credit scoring a decade ago. He said he revived the idea this year because of the economic fallout from the COVID-19 pandemic and because of the recent push for racial justice. 

“The whole Black Lives Matter and racial consciousness certainly helped to elevate it again,” Kreidler said.

Kreidler and other advocates cite studies that have shown a correlation between low credit scores and people of color. They also cite the experiences of individuals like Marie, who asked the public radio Northwest News Network not to use her full name because she works in the insurance industry and fears retaliation.

“I’m a safe driver, my husband and I have a long history of being insured, but I can’t afford the insurance at my own company,” Marie said.

The problem, said Marie, is that she and her husband have a lower credit score due to the fact they’re renters and don’t use credit cards. Marie said she understands why insurance companies rely on credit scores to set rates – credit history is correlated with risk — but she doesn’t think it’s fair, especially as an African American woman.

“I think that in our community we are less likely to use credit and less likely to be homeowners, we’re less likely to have those factors that would make us appeal to insurance companies,” Marie said.

Currently, Marie pays $460 a month to insure four cars and three drivers through what she called a “substandard” insurance carrier. Even with an employee discount, she estimates she’d pay nearly double that to get insurance through the company she works for.

Marie supports the idea of a ban on using credit scores to set auto and property insurance rates. But the proposal in the Legislature has run into stiff opposition from the insurance industry. At a recent public hearing on the bill, industry representatives defended insurance scoring – which they say uses elements of a person’s credit score — as objective, fair, accurate and predictive of losses.

“In fact, the use of these scores is the opposite of racial discrimination,” said Tony Cotto of the National Association of Mutual Insurance Companies (NAMIC) in Louisville, Kentucky.

Cotto offered himself as an example.

“I’m a married, Hispanic male in Kentucky who has a law degree, drives a 15-year-old truck and works for NAMIC — and an insurance score wouldn’t tell you any of those things because it doesn’t matter,” Cotto said. “What matters is how I behave.”

In that same hearing, consumer advocates said that while credit scores may not reveal a person’s characteristics, they are closely tied to income levels and, by extension, to race.

“It replaces or serves as a proxy for race, whether intentionally or not the impact is there, the unfairness is there and the discrimination is there,” said Douglas Heller with the Consumer Federation of America.

Both sides of the debate point to various studies that have looked at the connection between credit scores and race. Some studies draw more of a correlation than others.

For instance, a 2004 study by the Department of Insurance in Missouri found that “insurance credit-scoring system produces significantly worse scores for residents of high-minority ZIP codes.”

And Heller, of the Consumer Federation, told the Senate Business, Financial Services and Trade Committee that people living in Seattle’s 98118 ZIP code, described as the most diverse ZIP code in the country, are paying the highest penalty in the state for credit-based insurance pricing. 

However, a 2010 report by the Federal Reserve found “no evidence of disparate impact by race (or ethnicity) or gender,” but did find “limited disparate impact by age.” The authors of that report, though, acknowledged “important limitations” having to do with sample size and the credit history scoring model they used. 

While the extent of racial disparities in credit scoring is a topic of debate, it’s clear that scoring people based on their credit history carries a lot of weight with insurance companies. In fact, Kreidler’s office told the Senate committee that someone with good credit and a drunk driving conviction could pay less than someone with bad credit and no conviction.

Kreidler notes that four other states, including California, already restrict the use of credit scoring for insurance. Instead, he said, insurers should invest in other predictive tools like telematics which track a driver’s behavior. Kreidler’s bill to prohibit the use of credit scores by insurers in Washington is sponsored by Democratic state Sen. Mona Das. Twenty other Democratic sponsors have also signed on in support.

Gov. Jay Inslee is also pushing for passage of the measure. Recently, Inslee compared the practice of using insurance scoring to “redlining” – the now outlawed practice of denying mortgages or other financial services to people of color based on where they live. In Washington, it’s already illegal to use credit history by itself to deny or cancel insurance coverage. 

Still, the proposal has drawn opposition from minority Republicans and from state Sen. Mark Mullet, the Democratic chair of the Senate Business, Financial Services and Trade Committee.

Mullet said he’d like to find ways to lower insurance rates for good drivers with poor credit, but he worries that if credit scoring is banned good drivers with good credit will see their rates rise. Mullet predicts that would hit older drivers especially hard because he sees a clear correlation between credit scores and age.

“I think the unintended consequence is you would have a huge cost shift of younger consumers having their insurance premiums go down and older consumers having their insurance premiums go up,” Mullet said.

However, Cathy MacCaul of AARP Washington contested that assumption during the public hearing. She testified that older drivers often have lower credit scores because they no longer have mortgages or have stopped using credit cards. MacCaul also said workers 55 and older have been disproportionately impacted by pandemic-related layoffs.

While Mullet doesn’t support the bill in its original form, he said he hopes to advance an amended version out of his committee on Monday. Instead of banning credit scores outright, Mullet’s version would restrict their use to no more than 50 percent of the weighted factors used to determine rates.

Additionally, Mullet would establish an 18-month moratorium on insurance companies raising rates on people whose credit scores fall due to the pandemic.

But Kreidler said in a statement he can’t support Mullet’s substitute proposal.

“A ban should be on the books in the state of Washington,” Kreidler said. “Nothing less will do to protect the people of Washington at a time when they need it most.”

Sen. Das, the prime sponsor of the measure, said “more bold action” is needed, but also indicated she could support Mullet’s amended version of the bill. 

“It’s not the leap forward like we wanted,” Das said. “It’s a step in the right direction.”

Two other proposals in the Legislature, one in the House and the other in the Senate, would require insurers to provide reasonable exceptions to consumers whose credit scores are affected by extraordinary life events including natural disasters, a serious illness or a layoff.

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Do Personal Loans Have Penalty APRs?

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Select’s editorial team works independently to review financial products and write articles we think our readers will find useful. We may receive a commission when you click on links for products from our affiliate partners.

When you make your credit card payment late, you’re often subject to late fees and a penalty APR, which is a temporary spike in your interest rate.

The Blue Cash Preferred® Card from American Express, for instance, has a 13.99% to 23.99% variable APR, but the penalty APR is a variable 29.99% (see rates and fees). Penalty APRs usually last for at least six months, but card issuers often reserve the right to extend them — especially when you continue making late payments. A look at the terms for the Citi® Double Cash Card show us that the “penalty APR may apply indefinitely.”

Penalty APRs are certainly not a trap you want to fall into, but it’s not something you usually have to worry about if you have a personal loan. Personal loan lenders can, however, charge late fees upwards of $39 per late payment. Whether your loan charges late fees all depends on how good of a loan you qualify for, and that comes down to your credit score, borrowing history and ability to make your payments.

Personal loans also tend to charge lower interest rates than credit cards, too. The average personal loan interest rate for two-year loans is currently 9.46% according to Q1 2021 data from the Federal Reserve, compared to 15.91% for credit cards.

Typically, interest rates for personal loans range between roughly 2.49% and 24%, but personal loans for applicants with bad credit can come with even higher APR — so do your research before applying.

Other common personal loan fees include:

  1. Interest: The monthly charge you pay to borrow money
  2. Origination fee: A one-time upfront charge that your lender subtracts from your loan to pay for administration and processing costs
  3. Late fee: A one-time fee charged for each payment that you fail to make by the due date or within your grace period
  4. Early payoff penalty: A fee incurred when you pay off your balance faster than planned (because the lender misses out on months of expected interest payments)

As you can see, personal loans can be costly, even without a penalty APR. It’s obviously best to avoid paying extra fees whenever possible. That’s easier to do when you have a good to excellent credit score, since you’ll qualify for better loan options.

Select has a free tool to help match you with personal loan offers without damaging your credit score.

None of the loans on our best personal loan list charge origination fees or early payoff penalties, but some may charge late fees.

Our top picks for best personal loans

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.

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Early Termination of a Car Lease

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If you’re leasing a vehicle in order to save money, but are thinking of terminating your lease contract early, you may want to think twice. Leases aren’t always as easy or as affordable to get out of as auto loans.

Can You Terminate Your Car Lease Early?

In most cases, you can get out of an auto lease early, but you may not be able to do it cheaply.

Leasing typically comes with fees both at the beginning and end of your term. However, if you need to get out of your lease early, there may be early termination fees (ETF), making the cost more than you bargained for.

Additionally, lessors often require you to pay all your remaining lease payments in one lump sum before releasing the contract early. Costs involved with getting out of your car lease early may also include:Early Termination of an Auto Lease

  • Excess mileage charges
  • Wear and tear fees
  • Any taxes not yet collected
  • Any negative equity
  • Storage and transport fees
  • Pay the cost of sale preparation

Check your lease contract to see if your lessor has any charges for terminating your lease early, or if there are stipulations that prevent you from getting out of the contract before a certain time. Even if there are extra fees imposed on you for returning your leased vehicle early, it might be easier to terminate a lease nowadays than it’s been in the past.

Since the pandemic, many dealerships and lenders have pushed into the digital realm to get business done. This includes video conferences to meet with dealers that typically needed to be done in person in the past. Of course, your vehicle still needs to be turned into a franchised dealership to be inspected and processed before a leasing company allows you to terminate your lease contract early.

Is it Worth it to Terminate Your Lease?

The first step is to look at your leasing contract and see if you even can get out of your lease early, and how much it’s going to cost you in ETFs. Then, you need to gather the following information:

  • Your monthly lease payment amount
  • How many payments you have left on your contract
  • The residual value of the vehicle

To figure out a good ballpark figure for getting out of your leased vehicle early, add together the cost of your remaining lease payments and any ETFs. To see if it’s worth it, compare this figure with the buyout price at the end of your lease, and find out what the current market value of the car is by checking sites like Kelley Blue Book and NADAguides.

Depending on how close you are to the end of your lease term, if the buyout price on the vehicle is significantly lower than the early termination price, it may be a good idea to wait it out. Then, once you buy out your lease, you can trade in the car for something else.

If you decide not to wait, how you handle getting out of your leased vehicle early could depend on the difference between the current market value of the car and the residual value of the vehicle as predetermined in your leasing contract. If the car has more value than the lessor predicted, you may be able to sell it for enough to pay your way out of your lease early.

Three Options for Terminating Your Lease Early

If you’re looking to get out of your lease early, for whatever reason, you typically have three options:

  1. Sell your leased car to a dealer – Selling your leased car to a dealer is similar to doing a trade-in, except they pay off your lease contract, including the early termination fees. It’s typically a pretty easy process, especially since used vehicles are in high demand since the pandemic. You may be able to get a little more for a car that’s coming off a lease since the turnaround time on a sale is likely to be shorter, depending on demand. If this is the case, you may even be able to walk away with some cash in hand depending on if the dealer’s willing to pay more than the lessors estimated residual value on the vehicle.
  2. Have someone else take over your lease – Lease assumption isn’t always something you can do, but in many cases, you can transfer your lease to someone else, as long as they meet all the lessor qualifications and there’s equity in the vehicle.
  3. Lease buyout – With the demand for used vehicles at affordable prices up right now, you may be able to buy out your lease then sell the car privately as long as you get enough money to make it worth your while. If you can’t come close to selling it yourself for the amount you need to pay off your lease, including ETFs, it may not be worth it to try and get out of the vehicle early. Most leasing companies allow for some form of early lease buyout, but again, it may cost you those extra fees.

If Leasing Isn’t for You

Now that you’ve figured out whether it’s worth it or not to get out of your lease early, it’s time to decide what to do next when it comes to getting a vehicle.

If you didn’t mind leasing but the car just wasn’t for you, you likely have the option to swap into another lease on a different vehicle with the same company. Many lessors contact lessees toward the end of their contracts to see if they’d be willing to get into another car lease early.

However, leasing isn’t for everyone. If you found that the restrictions that come with it such as the mileage limitations, or cost of maintenance and repairs are too much for you to handle, it may be time to consider an auto loan for your next go-round. If this is the case, Auto Credit Express wants to get you started on the path toward your next vehicle.

We’ve gathered a nationwide network of special finance dealerships that are signed up with lenders to help people with credit challenges. Whether you’re just not sure where to start or you need a little help due to bad credit, start here. By filling out our fast, free, no-obligation auto loan request form, you’re taking the first step toward finding your next car loan without all the hassle of searching. Get started right now!

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GSB focuses on social responsibility

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State-owned Government Savings Bank (GSB) has focused on providing loans to people without a record in the National Credit Bureau system or with bad credit over the last year to help those impacted by the pandemic deal with unprecedented economic hardship.

GSB president and chief executive Vitai Ratanakorn said the bank has extended loans to people with no credit history who have never borrowed from commercial banks or non-bank institutions.

He said the bank had already provided 1.5 million loans to members of this group of people.

The bank has also provided loans to 200,000 people with bad credit records.

Mr Vitai said the lending was aimed at drawing those outside the credit bureau system into the system and enabled them to get access to the loans, which was one of the main roles of state-run banks. This lending has been supported by the government.

He said this lending was not aimed at seeking profit as GSB charged a low monthly interest rate of 0.1-0.3%. For example, if the bank provided a 10,000 baht loan to a person under this scheme, it would only gain interest income of around 120 baht per year.

In addition to its objective of becoming the country’s genuine social bank, GSB’s other goal this year is to prevent loans from becoming bad debts, he said. The bank will rush to help customers in danger of accumulating bad debt to restructure before it reaches that stage.

Mr Vitai said GSB will not focus on growing its loan portfolio during the first six months of the year, but on serving the state’s policy of helping people and business operators cope with the impacts from Covid-19. Grassroots people and small and medium-sized enterprises are suffering the most from the pandemic, he said.

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