Credit histories and loan records are tools traditionally used by lenders to decide whether to give consumers credit. Other industries also have adopted the use of credit scores. Telecommunications providers and utilities use them to decide whether a customer needs to put down a security deposit. The score can also determine the amount of that deposit. This trend raises questions about fair practices and access to essential services, especially for consumers with low incomes (see also Chapter 11, Financial Services and Consumer Products—Consumer Credit Protection for more on credit scoring). Many credit-scoring models do not include utility payment history. So, a consumer with a perfect utility payment history could still be required to provide a deposit or pay a higher rate because of a poor credit record in other areas.
CREDIT SCORING: Policy
State policymakers should prohibit the use of credit scores or reports to determine the rates or deposits of essential residential utility service.
If state policymakers permit public utilities to require a customer to pay a security deposit because of a credit score A three-digit numerical score that estimates a consumer’s creditworthiness based on underlying information about the consumer’s borrowing history contained in his or her credit report. Lenders use credit scores to evaluate the possible risk of extending credit to a specific person… , they should also require credit-scoring procedures to be applied uniformly to all customers and service areas and impose consumer protections, including the following:
- Credit scores should not be the only method of determining whether to require a security deposit.
- Before having to pay a security deposit as a result of a credit score A three-digit numerical score that estimates a consumer’s creditworthiness based on underlying information about the consumer’s borrowing history contained in his or her credit report. Lenders use credit scores to evaluate the possible risk of extending credit to a specific person… , applicants should have an opportunity to demonstrate creditworthiness through other means.
- Utilities must disclose credit scores to all applicants required to pay a security deposit based on their score. The utility must also provide such applicants with the name and contact information of the entity providing the score and the rights and disclosures required by the Fair Credit Reporting Act, the Equal Credit Opportunity Act, and any state utility, credit, and collection regulations.
- Utilities should disclose their use of credit scoring to all consumers.
- Customers who pay a security deposit should have the right to receive a full refund of their deposit plus interest if they fulfill their payment obligations to the utility over a reasonable amount of time.
- State regulators should review and approve the development and use of credit scores and the specific score below which a security deposit will be required.
Utilities should submit all relevant data to state regulators on an annual basis to help determine the impact of credit scoring on consumer access to essential services.