Credit Scoring for Utility Service

Background

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 (see also Consumer Credit). Telecommunications providers and utilities use them to determine whether to require a security deposit from a customer. The score can also determine the amount of that deposit. This trend raises questions about fair practices and access to essential services. It is especially of concern for consumers with low incomes.

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 FOR UTILITY SERVICE: Policy

CREDIT SCORING FOR UTILITY SERVICE: Policy

Consumer protections

State policymakers should prohibit the use of credit scores or reports to determine the rates or deposits of essential residential utility services.

If public utilities are permitted to use credit scores to determine whether a security deposit is required, that practice should be applied uniformly to all customers and service areas. Policymakers should enact 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 scoreAn estimate of a consumer’s creditworthiness based on borrowing history. Lenders use credit scores to evaluate the possible risk of extending credit. They are increasingly used by non-lenders, such as insurance companies., 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 should have the right to receive a full refund of their security deposit if they fulfill their payment obligations over a reasonable amount of time. The utility should also pay reasonable interest on the amount held.
  • 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.