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A

Consumer

Reports 

What Insurers

Need to Know

s an insurer, you may use consumer reports to underwrite

insurance policies and to screen high-risk applicants — as

long as you comply with the Fair Credit Reporting Act

(FCRA).

The Act

The FCRA is designed to protect the privacy of consumer report

information and to guarantee that the information supplied by credit

reporting agencies (CRAs) is as accurate as possible. Consumer reports

may include information on an applicant’s credit history, medical

conditions, driving record, criminal activity, and hazardous sports.

Amendments to the FCRA, which went into effect September 30, 1997,

increase the legal obligations of insurers who use consumer reports.
Facts for Business

The Adverse Action Notice

The following disclosure requirement applies to

new applicants as well as current policy

holders. When an adverse action is taken—such

as a decision to deny insurance, increase rates,

or terminate a policy—and it is based solely or

partly on information in a consumer report,

Section 615(a) of the FCRA requires you to

provide a notice of the adverse action to the

consumer. The notice must include:

 the name, address, and telephone number of

the CRA that supplied the consumer report,

including the toll-free telephone number for

credit bureaus that maintain files nationwide;

 a statement that the CRA that supplied the

report did not make the decision to take the

adverse action and cannot give the specific

reasons for it; and

 a notice of the individual’s right to dispute

the accuracy or completeness of any information the CRA furnished, and the

consumer’s right to a free report from the

CRA upon request within 60 days.

Disclosure of this information is important

because some consumer reports may contain

errors. The adverse action notice is required

even if information in the consumer report was

not the main reason for the denial or rate

increase. Even if the information in the report

played only a small part in the overall decision,

the applicant still must be notified.

While written adverse action notices are not

required, many insurers provide them and keep

copies for two years to show compliance with

the FCRA.

Examples

The following examples illustrate situations

where the adverse action notice must be given

to insurance applicants.

A life insurance company orders a consumer

report from a CRA, such as the Medical

Information Bureau (MIB). Information

contained in the MIB report leads to further

investigation of the applicant. The

application for insurance is rated or

declined in whole or in part because of

information obtained from the investigation.

Section 604(g) of the FCRA requires an

insurance company, or any other user of

medical information, to get the consumer’s

consent — orally, electronically, or in writing

— before obtaining medical information. That

means the life insurance company in this

situation would have to get the consumer’s

consent before obtaining the consumer report

from the MIB. In addition, since the MIB

report formed part of the basis for the adverse

decision in this case, the full Section 615(a)

adverse action notice described above must be

sent to the consumer.

A person with an unfavorable credit history,

such as a bankruptcy, is denied automobile

insurance at standard rates. Although the

credit history was considered in the

decision, the applicant’s limited driving

experience was even more important.

The applicant is entitled to the Section 615(a)

adverse action notice because the credit report

played a part, however minor, in the insurer’s

decision to charge a higher premium.
Facts for Business

Non-compliance with the FCRA

There are legal consequences for insurers who

fail to get an applicant’s permission before

requesting a consumer report or who fail to

provide required disclosure notices. The FCRA

allows individuals to sue insurers for damages

in federal court. A person who successfully

sues is entitled to recover court costs and

reasonable legal fees. The law also allows

individuals to seek punitive damages for

deliberate violations. In addition, the Federal

Trade Commission, other federal agencies, and

the states may sue insurers for non-compliance

and obtain civil penalties.

For More Information

The FTC works for the consumer to prevent

fraudulent, deceptive, and unfair business

practices in the marketplace and to provide

information to help consumers spot, stop, and

avoid them. To file a complaint or to get free

information on consumer issues, visit

www.ftc.gov or call toll-free, 1-877-FTCHELP (1-877-382-4357); TTY: 1-866-653-

4261. The FTC enters Internet, telemarketing,

identity theft, and other fraud-related

complaints into Consumer Sentinel, a secure,

online database available to hundreds of civil

and criminal law enforcement agencies in the

U.S. and abroad.

Your Opportunity to Comment

The National Small Business Ombudsman and

10 Regional Fairness Boards collect comments

from small businesses about federal compliance

and enforcement activities. Each year, the

Ombudsman evaluates the conduct of these

activities and rates each agency’s

responsiveness to small businesses. Small

businesses can comment to the Ombudsman

without fear of reprisal. To comment, call tollfree 1-888-REGFAIR (1-888-734-3247) or go

to www.sba.gov/ombudsman.
Federal Trade Commission

Bureau of Consumer Protection

Office of Consumer and Business Education

October 1998

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Facts for Business