Supporting Regulatory Controls on the Use of Credit Scoring by Utilities to Determine imposition of Deposits.

WHEREAS the use and analysis of credit histories and credit records long has been a primary component of companies seeking to determine whether to extend or deny credit to a consumer;

WHEREAS technological advances have enabled the credit industry to automate the process of analyzing credit histories and credit records by assigning a single score to the information contained in those records;

WHEREAS a number of firms have developed specialized computer programs that purport to analyze credit histories and credit records within specific industries to predict the creditworthiness of an individual applicant;

WHEREAS many credit granting institutions, such as banks, promote credit scoring as a nearly instantaneous means of determining an applicant’s eligibility for and conditions of receipt of a mortgage or car loan;

WHEREAS many financial institutions, such as insurance companies, use credit scores to assist in underwriting new and renewing existing insurance policies;

WHEREAS utilities, including gas, electric, and telephone service providers, are using credit scoring to decide whether to serve certain applicants, or to determine the conditions of that service, such as whether to require a security deposit;

WHEREAS credit scoring is a software-based model that assigns numerical values to specific variables found in credit reports and credit histories; and,

WHEREAS the functional basis and rationale for the use of credit scoring, (i.e., the lower the score, the greater the likelihood of future default on a financial obligation), may act as a barrier to obtaining essential utility services, especially by low-income customers who cannot afford to pay a security deposit.

THEREFORE BE IT RESOLVED that the National Association of State Utility Consumer Advocates (NASUCA) urges state public utility commissions to carefully consider how public utilities in their state use credit scoring and its impact on access to essential utility services by consumers generally and low-income consumers in particular.  When state regulators permit the use of credit scoring to determine the imposition of security deposits, the following minimum consumer protections should be required:

  1. State regulatory approval of the specific score below which a deposit will be required.  This score must be based on an analysis of that utility’s population, including an assurance that the score will not prevent the vast majority of applicants for utility service from obtaining it.
  2. Application by the utility of the credit scoring method only for those applicants without prior utility payment history to determine whether a deposit is required.
  3. Use of credit scoring shall not be the sole method of determining whether to require a security deposit from a low-income applicant.  The utility shall also give weight to the availability of and an applicant’s eligibility for the utility’s bill payment assistance program or the federal Low-Income Home Energy Assistance Program.
  4. If a deposit is required as a result of a credit score, the applicant will be informed of the ability to avoid a deposit payment by designating a third-party guarantor of the deposit amount.
  5. Applicants required to pay a deposit based on a credit score shall be informed of that credit score, and of the agency, bureau or service providing that scoring.  Applicants also shall be informed of the opportunity to demonstrate creditworthiness for utility service.

    The utility will reconsider the deposit requirement if the applicant demonstrates that the credit score is based on incomplete or erroneous information.

  6. If the utility requires a deposit or takes other adverse action against an applicant as a result of a credit score, the utility will inform the applicant of the reason for imposing the deposit or adverse action and provide the rights and disclosures required by the Equal Credit Opportunity Act, the Fair Credit Reporting Act, and the dispute resolution rights and appeal procedures under that state’s utility credit and collection regulations.
  7. The utility will apply the credit scoring procedure uniformly throughout its service territory and shall make that procedure available to customers or applicants in writing upon request, and by posting the procedure on the utility’s website.
  8. The utility will submit annual reports to the state public utility commission on the frequency of use of credit scoring, the resulting number of required security deposits or other adverse action, and the number and percent of low-income customers exempted from security deposits.

BE IT FURTHER RESOLVED, that the Consumer Protection Committee of NASUCA, with the approval of the Executive Committee of NASUCA, is authorized to develop positions and take all steps consistent with this resolution to secure its implementation.

Approved by NASUCA

Place: Austin, TX

Date: June 15, 2004