Goal to keep auto sales and repair in state
Iowa’s legislature closed out its 2004 session by passing several new laws that will affect insurers and shops.
Senate File (SF) 2253 changes the value threshold in Iowa’s auto collision damage disclosure law. Iowa law requires anyone transferring a title to include a damage disclosure statement. Previously, that statement had to list any damage more than $6,000. The new law requires sellers to indicate whether the vehicle ever was damaged to the extent that it qualified as a “wrecked” or “salvage” vehicle under Iowa laws. Wrecked or salvaged vehicles are those with damages exceeding 50 percent of their value.
The person transferring ownership also must indicate if the vehicle ever was titled as a salvage, rebuilt or flood vehicle prior to the current period of ownership. SF 2253 affects anyone selling a vehicle in Iowa or anyone selling to an Iowa resident whose state has a similar disclosure requirement.
Martha Martell, general counsel for the Iowa Automobile Dealers Association (IADA), says her organization was “not exactly happy, but satisfied” with the passage of the law. According to Martell, the legislation was initially pushed by the state’s property and casualty insurers who contended that the existing regulations made it difficult to calculate diminished value (third parties can collect diminished value in Iowa). “Using the old law, sellers had to keep track of any damages over $6,000. Insurance agents were asking, ‘How do you calculate diminished value over the life of a vehicle?’,” Martell says.
Auto dealers, particularly those located near Iowa’s borders, also wanted the old law changed. They complained they were losing business because Iowa consumers, not wanting to deal with the disclosure regulations, were taking their trade-ins and repair business to dealerships in bordering states. The IADA believes the new law will change some of that. “We expect that, after the law goes into effect, fewer Iowans will choose to repair their vehicles out of state or trade out of state,” Martell says.
Other new laws include SF 2257, which governs insurer use of credit information. SF 2257 specifically governs a controversial practice known as credit scoring, whereby insurers use a consumer’s credit information to determine insurance rates. SF 2257 uses the National Conference of Insurance Legislators’ (NCOIL) model law on credit information. As such, the new law contains provisions that prevent insurers from using income, gender, race or marital status when calculating insurance rate risks. Insurers are also prevented from denying or canceling policies solely on the basis of credit information.
The American Insurance Association (AIA) supported both bills and declared Iowa’s 2004 legislative session “a success for consumers and insurers on key issues affecting the property-casualty insurance market.”
Consumer and automotive groups were not as enthusiastic about the use of credit scores in setting premiums. Consumer advocacy groups such as the Center for Economic Justice (CEJ) are critical of credit scoring practices, saying credit scores have little to do with how safe or unsafe a driver is. Birney Birnbaum, an attorney for the CEJ, calls credit scoring an unfair practice that disproportionately penalizes poor and working class motorists.
Birnbaum says credit ratings often drop due to bankruptcies and high medical bills. Birnbaum also says a good credit history does not always equate to good credit scores since factors not related to credit management are used to calculate these scores. According to Birnbaum, credit scores often are based “on the type of credit (consumer finance loans are less favorable than bank loans), the number of credit cards (there is a magic number that is optimal, even if the consumer only uses the retail store cards once to get the first time 10 percent purchase discount)…length of time since last account opened (which penalizes families that have just moved or refinanced their mortgage) and the number of inquiries (which penalizes consumers who shop around for the best rate—behavior that should be rewarded and not punished with higher insurance rates.)”
Jeffrey Junkas, AIA director of public affairs for the Midwest region, contends credit scoring is well supported by documentation and statistics. “It’s a valuable tool and prime predictor of loss,” says Junkas, “It’s also something the consumer has control over and can improve. And it benefits responsible consumers. Twenty-two other states have passed similar laws.”
Junkas also states that the AIA addresses complaints with credit scoring laws on a state-by-state basis. Junkas says, “We do our best to write for all parties. In the case of the Iowa law, we deviate from the NCOIL model with stipulations that, for example, don’t allow a lack of credit history to be used when determining rates or eligibility.”
Noticeably absent from debate over the new legislation was a collective voice for Iowa repairers. “We really have no state association, so we have no real voice,” says Bob Jones, owner of R. Jones Collision Repair. Jones says this is largely due to Iowa’s demographics and political climate. He explains, “We’re a very rural, very conservative state.”
The lack of an association makes disseminating news affecting the state’s collision industry extremely difficult. Jones, who remains politically active in the Iowa collision community, recently spoke at a hearing on aftermarket parts held by the state’s insurance commissioner. Jones says he only found out about the hearing after being contacted by the IADA. No other repairers were in attendance. Word of the passage of the disclosure law had yet to reach Jones.
Both laws go into effect July 1.
