PAID Act

Bill Number

H.R. 3664

Origin Chamber

House

Congress

119th Congress, Session 1

Policy Area

Finance and Financial Sector

Status

Introduced

Latest Action

2025-05-29: Referred to the Committee on Financial Services, and in addition to the Committee on Energy and Commerce, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.

Last Updated

2025-06-24T12:44:03Z

AI-Generated Summary

Purpose of the Legislation

The Prohibit Auto Insurance Discrimination Act (PAID Act), H.R. 3664, aims to prevent discrimination in private passenger automobile insurance by banning the use of certain socioeconomic factors—often called "income proxies"—that insurers currently use to set rates or determine eligibility. It seeks to ensure that insurance pricing is based more fairly on actual risk factors like driving history, rather than indicators of wealth or status that can lead to higher costs for lower-income drivers.

Key Provisions

• Prohibited Factors in Underwriting and Rating: Insurers and their affiliates cannot consider the following when deciding eligibility for coverage or calculating premiums:
• Gender.
• Level of education (e.g., highest degree completed, excluding traffic safety courses).
• Occupation (current job category).
• Employment status (e.g., full-time, part-time, unemployed).
• Home ownership status (whether the person owns a residence).
• ZIP Code or nearby ZIP Codes.
• Census tract (a small geographic area defined by the U.S. Census Bureau for statistical purposes).
• Marital status.
• Credit score or credit-based insurance score (a number derived from credit history to predict insurance risk).
• Consumer report (credit or background reports, excluding those solely about driving history or address).
• Previous insurer.
• Prior purchase of insurance from the same company.

Using these factors in ways that affect rates, discounts, eligibility, policy changes, or denials is illegal if it results in higher costs or barriers for consumers.

• Reporting and Transparency Requirements:
• Insurers must submit data to the Federal Trade Commission (FTC) every two years (starting one year after enactment) showing that their practices, algorithms, and models do not disproportionately harm groups protected under civil rights laws (e.g., based on race, sex, disability, or sexual orientation).
• All underwriting rules (guidelines for approving coverage) and rate filings (documents submitted to regulators for premium approval) must be publicly available and cannot be treated as secret business information.

• Compliance Safe Harbor: Individuals or companies are not liable for violations if they can prove they had reasonable steps in place to follow the law.

• Enforcement Mechanisms:
• FTC Role: Violations are treated as unfair or deceptive practices under the FTC Act, with civil penalties starting at $2,500 per violation. The FTC can issue regulations to enforce the law.
• Consumer Lawsuits: Consumers can sue for actual damages, punitive damages (for willful violations), and attorney fees. Negligent violations allow recovery of damages and fees. Lawsuits must be filed within two years of discovery or five years of the violation.
• State Actions: State attorneys general can sue on behalf of residents for injunctions (court orders to stop violations), damages, or other relief, with notice to the FTC, which can intervene.

• Relation to State Laws: The Act supplements state insurance regulations but preempts (overrides) inconsistent state laws.

• Definitions: Key terms are defined, such as "affiliate" (related companies under common control), "private passenger automobile" (standard personal vehicles under 15,000 pounds gross weight, not used for business or rentals except farming), and others to clarify scope.

• Effective Date: The law takes effect one year after enactment.

Significant Changes to Existing Law

• New Federal Restrictions on Rating Factors: Unlike current practices where states largely regulate insurance and allow factors like credit scores or ZIP Codes in many places, this introduces nationwide bans on specific socioeconomic proxies, shifting focus to actuarial risk (data-driven predictions of loss based on driving behavior).
• Increased Transparency: Underwriting rules and rate filings, often kept confidential as trade secrets, must now be public, promoting accountability.
• Disparate Impact Monitoring: Adds a federal requirement for insurers to report on potential discrimination against protected groups, building on but expanding existing anti-discrimination laws like the Fair Credit Reporting Act.
• Private Right of Action: Creates new pathways for individuals and states to sue, beyond FTC enforcement, which is not standard in all insurance regulations.

Potential Impacts

• On Citizens: Lower-income and marginalized drivers may see reduced premiums and better access to affordable coverage, as pricing would rely less on wealth indicators. This could ease financial burdens in states where auto insurance is mandatory (all except New Hampshire), potentially lowering penalties like fines or license suspensions for uninsured driving.
• On Government Agencies: The FTC gains a significant new role in overseeing insurance practices, including algorithm reviews, increasing its workload and regulatory authority. State regulators and attorneys general benefit from aligned enforcement tools but may need to adjust where state laws conflict.
• On Insurers: Companies must overhaul underwriting models, potentially raising operational costs and requiring new compliance systems. This could lead to more uniform national practices, reducing state-by-state variations.
• On International Relations: No direct impacts, as the bill focuses on U.S. domestic insurance markets.

Main Stakeholders Affected

• Private Passenger Automobile Insurers and Affiliates: Directly regulated; must change pricing models and report to the FTC, facing penalties for non-compliance.
• Consumers: Especially lower-income individuals, minorities, or those in urban/low-wealth areas, who may benefit from fairer rates but could face short-term disruptions if insurers adjust offerings.
• Federal Trade Commission (FTC): Primary enforcer, with expanded oversight of insurance algorithms and disparate impacts.
• State Governments and Attorneys General: Gain authority to protect residents but must coordinate with federal efforts.
• Civil Rights and Consumer Advocacy Groups: Likely to support and monitor implementation to ensure protections against indirect discrimination.

Notable Legal, Constitutional, or Political Implications

• Legal Implications: Strengthens consumer protections by treating violations as unfair practices under the FTC Act, enabling broad enforcement powers like investigations and fines. The private lawsuit provisions empower individuals without needing class actions, but the two-to-five-year statute of limitations (time limit for filing) balances access with insurer predictability. It preserves state authority except for direct conflicts, avoiding major federalism disputes.
• Constitutional Implications: By prohibiting factors that may correlate with race or income (e.g., ZIP Codes or credit scores), the Act addresses potential equal protection concerns under the 14th Amendment, promoting fairness without directly regulating speech or contracts. The disparate impact reporting aligns with civil rights precedents but could invite challenges if seen as overregulating private business.
• Political Implications: As a bill introduced by Democratic representatives, it highlights debates over economic inequality in essential services like insurance. It may face opposition from the insurance industry over lost flexibility in risk assessment, potentially affecting profitability, while gaining support from those advocating for equitable access to mandated coverage.

This summary was generated by AI and may contain inaccuracies. Refer to the official source document for the authoritative text.

Sponsor

Rep. Watson Coleman, Bonnie [D-NJ-12]

Cosponsors (2)

Rep. Tlaib, Rashida [D-MI-12], Rep. Takano, Mark [D-CA-39]

Recent Actions

• 2025-05-29: Referred to the Committee on Financial Services, and in addition to the Committee on Energy and Commerce, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.
• 2025-05-29: Referred to the Committee on Financial Services, and in addition to the Committee on Energy and Commerce, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned.
• 2025-05-29: Introduced in House
• 2025-05-29: Introduced in House

Bill Versions

• Prohibit Auto Insurance Discrimination Act — issued 2025-05-29 — PDF (16 pages)