McCarty Credit

Question 1

Arguments against use of credit-scoring

FEED

Answer 1

• Frequency (credit score is correlated only with frequency, not with severity of claims)
• Errors (50% of credit reports have errors, sometimes due to identity theft)
• Economic downturns (downturns in economy may have a disparate credit impact on vulnerable populations)
• Discriminatory (credit scoring may lead to rates that are unfairly discriminatory)

Question 2

Examples where credit scoring can be unfairly discriminatory

RAMP

Answer 2

• recent immigrants: may not have access to credit
• age: young people don’t have a long credit history, elderly people use credit less often
• moral/religious beliefs: certain belief systems may discourage use of credit
• poor families: may use cash versus credit (need to use credit to get good score)

Question 3

Necessary conditions for rates to be equitable

Answer 3

• should NOT have disparate impact on protected classes
• should be a CAUSAL LINK and under control of individual