The Consumer Federation of America (CFA), a non-profit organization dedicated to advancing consumer interests, has published a report suggesting that drivers with low incomes often pay more for car insurance. Authored by Douglas Heller, the CFA's Director of Insurance, and Michael DeLong, a Research and Advocacy Associate, the report was released in 2023.
According to this study, auto insurance providers frequently charge higher rates to Americans with lower incomes when they use customers' credit scores as a determining factor. The report indicates that low-income individuals "disproportionately" tend to have lower credit scores than wealthier individuals due to several factors.
The report also suggests that low-income individuals are more likely to begin their credit history with a "negative" event such as debt being sent to collectors. Conversely, higher-income individuals typically start their credit history by opening a credit card. Furthermore, the report states that lower-income households generally have less discretionary income and savings and are more likely to face "sudden financial demands" they cannot meet. As a result, when insurers determine rates and eligibility based on credit, "low-income Americans are harmed to a greater extent than wealthy consumers, meaning they pay more for auto insurance even though they can afford less," according to the findings.
Heller and DeLong's research discovered that many insurance providers consider a consumer's credit score more significant than their driving record when setting costs. This could potentially have more impact on a driver's premium than any other factor. The CFA analyzed insurance premium data from the ten largest insurers across the country and found that consumers with fair or poor credit pay "significantly" more than drivers with excellent credit. For instance, in Georgia, drivers with excellent credit pay an average of $535 for an auto insurance premium; those with fair credit pay $749; while drivers with poor credit pay $1,047. In this example provided by the CFA, all three consumers have "spotless" driving records.
Established in 1968, the CFA is involved in education, research, and advocacy with the goal of advancing consumer interests. According to its website, over 250 non-profit organizations are part of the CFA.
