The Prohibit Auto Insurance Discrimination Act Could Redefine Rate-Setting Standards

A bill to prohibit auto insurers from basing prices and premiums on credit scores, ZIP codes, and other non-driving factors has been reintroduced in the U.S. House of Representatives.

If passed, the Prohibit Auto Insurance Discrimination Act, or PAID Act (H.R. 3664), could redefine how the industry determines risk and have implications for the subprime industry, including increased prices. But it could also create more access for borrowers.

The PAID Act seeks to eliminate so-called economic redlining, which produces unaffordable premiums among lower-income motorists, according to backers.

Led by Rep. Bonnie Watson Coleman (D-NJ) and cosponsored by Reps. Rashida Tlaib (D-MI) and Mark Takano (D-CA), the bill speaks to growing concern regarding the fairness of insurance pricing.

The bill can potentially change rate-setting practices in an industry where statistical proxies have long served as the basis for determining risk.

The law, if implemented, would cover all private passenger auto insurers and their affiliates nationwide.

This push for reform comes as consumer advocates focus on structural disparities in coverage affordability. Critics contend drivers in low-income communities pay more — clean records notwithstanding — because insurers rely on income surrogates such as employer status and credit scores to determine rates.

The bill prohibits auto insurers from applying 12 specific factors when establishing premiums or determining coverage qualifications. The prohibited factors include education level, marital status, credit score, consumer reports, job status, home ownership status, as well as location indicators like ZIP code and census tract.

In particular, insurers must demonstrate their advertising and algorithms do not have disparate impacts along racial, gender, or other protected classes. The bill would impose biennial compliance statements on insurers be filed with the Federal Trade Commission, and rate filings would be disclosed to the public.

Violations may be enforced by the FTC, as well as be subject to fines of at least $2,500 per violation. Consumers may sue to obtain damages and attorney fees, particularly where the misconduct was willful.

Subprime insurers are often engaged in low-margin businesses and are almost entirely dependent on underwriting algorithms to manage segment risk and control losses.

Many industry members are in favor of criteria such as credit score and employment status that they claim are correlated with the frequency and severity of claims, irrespective of driver behavior.

Removing these tools may result in insurers having to retune their models and increase prices across broader customer groups, eroding the distinction between nonstandard and preferred markets. Small insurers and high-risk pool specialists may face disruption.

If passed, the PAID Act may have implications for the subprime industry, including increased prices. But it could also create more access for borrowers.

Subprime borrowers, however, could gain access to rates based on driving behavior instead of economic status. Industry monitors have long wondered whether proxying income disproportionately burdens people of color and low-income communities.

Industry trade organizations have vehemently opposed the PAID Act as distorting the principles of risk-based pricing. The National Association of Mutual Insurance Companies, or NAMIC, warned that the bill encroaches on states’ regulatory powers and takes away sound actuarial tools used in rate-making practices.

In the opinion of NAMIC’s senior vice president of federal and political affairs, Jimi Grande, stripping such considerations as credit score and ZIP code means less accurate underwriting and ultimately drivers of low risk subsidizing drivers of high risk: “Partisan reports … represent why Americans are so frustrated with Washington.”

Insurers argue education level, employment status, and credit score are well-known predictors of claim frequency. Removing such factors, companies note, could lead to one-size premiums to fit all conditions. That could drive prices higher on more drivers, even some with good driving histories.

As of June 2025, the PAID Act sits in committee; Democrats are currently in the minority in the House, so the bill is unlikely to receive a floor vote this session. But its introduction bodes well for the larger trajectory toward transparency of algorithmic pricing.

Whether the bill is passed or not, state regulators, particularly in activist insurance commissioners’ states, may follow along.

The bill is a wake-up call to subprime lenders, insurers, and car financing companies to review pricing formulas and anticipate closer scrutiny. The argument over actuarial fairness and equitable access is back in the limelight — and the result could redefine how the industry determines risk.