Slacktivist is peeved by this Reuters story in which utility company TXU plans on linking credit scores to energy bills.
In a new rate-setting tactic for electric utilities, the unit of Dallas-based TXU Corp. plans bigger rate increases for customers with low “credit scores,” which are numeric rankings that take into account customer histories of paying electricity, phone and cable bills, the Wall Street Journal reported.
TXU defends the use of credit scoring as an accurate predictor of whether customers can pay future bills, the newspaper said.
Tom sees this as TXU’s way of not forcing customers who pay in a timely manner to subsidize those who do not, but I don’t. Seems to me that the power company has a pretty big stick to get people to pay, namely turning off the juice. How many people are going to want to live in the dark? You can’t switch providers to avoid paying a previous bill, either. So why does TXU need to do this? I agree with Slacktivist – this should not be allowed.
I have a bigger philosophical qualm about letting a private entity like the credit-reporting industry have that much power over citizens’ lives. Credit scores should not be this pervasive, especially in this day and age of identity theft. I suspect, though, that until a few middle class suburbanites complain about having higher electric bills than their neighbors that this will not be enough of an issue to get widespread attention.
A comment on another blog reminded us of the merger of the corporation and the state under Italian Fascism.
With due respect to Texas, a caring state government would kill this idea in its cradle.
“ability to pay future bills” like anyone of us ever forsees a time when we will not have to pay utility bills. Someday (I hope) I will pay off my Sears account. But I will always have to pay utility bills. I guess until there is some affordable, green and reliable alternative.
I’m down with requiring a deposit if you don’t have a good history of paying. I’m fine with the Electric Company charging you a late fee.
But charging a higher rate AND doing the above is sort of double jeopardy. This should be illegal.
Don’t insurance companies use credit scoring in their pricing practices?
Kevin: I did some research on the basis of your comment. Some of them do, and apparently it’s a recent innovation. The practice of providing discounts based on good credit is not uncontroversial. Here’s a link to a Michigan Senate document about it.
http://66.102.7.104/search?q=cache:oP_fSjRPr4QJ:www.senate.michigan.gov/sfa/Publications/Notes/2003Notes/NotesJanFeb03Layman.PDF+legality+of+credit+scoring+in+pricing&hl=en
In insurance it’s based on a correlation between risk and credit scores. TXU doesn’t have even that level of justification.
Keep in mind that a person’s credit score is based, in some part, upon income. Thus poor people will pay higher rates for electricity.
That does it. I’m switching from TXU.
In insurance it’s based on a correlation between risk and credit scores. TXU doesn’t have even that level of justification.
I oppose credit scoring even for insurance. Correlation doesn’t imply causation. A poor credit history doesn’t cause you to have a car accident, even if people with poor credit do happen to have more accidents.
In fact, it’s more likely the reverse. People who are unfortunate enough to have accidents are likely to also incur large medical bills, which could damage their credit.
Insurance rates should be based on things which have some reasonable relation to the risk of a claim, not on unrelated statistics which just happen to show a correlation with claim risk.
Otherwise, we might as well just cut out the middleman (credit bureau) and base rates directly on income and race.