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Question

Difficulty: MediumFair Credit Reporting Act (FCRA)

Elena submits an application for a personal auto insurance policy. To finalize the underwriting process, the insurer obtains a standard consumer credit report from a national credit reporting agency. Upon reviewing the report, the underwriter determines that Elena does not qualify for the preferred rate and instead offers her a policy at a higher, substandard premium. According to the Fair Credit Reporting Act (FCRA), which of the following actions must the insurer take?

  1. Send Elena an adverse action notice containing the name, address, and toll-free telephone number of the credit reporting agency that supplied the report.Answer
  2. B
    Inform Elena that she must submit a written request within three days to learn the nature and scope of the credit investigation.
  3. C
    Provide Elena with a complete copy of the consumer report and instruct her to dispute any errors directly with the insurance underwriter.
  4. D
    Proceed with issuing the policy without additional notifications, as adverse action requirements only apply when an application is entirely rejected.

Answer

The insurer must send an adverse action notice containing the contact information of the credit reporting agency that supplied the report.
Under the FCRA, when an insurer takes an adverse action (such as denying coverage or charging a higher premium) based wholly or partly on information contained in a consumer report, the insurer must provide the consumer with an adverse action notice. This notice must include the name, address, and phone number of the consumer reporting agency that furnished the report, allowing the consumer to obtain a free copy and dispute any incorrect information.

Step-by-Step Solution

1
Identify the type of report used and the underwriting decision made.
The insurer used a standard consumer credit report and offered a policy at a higher, substandard premium instead of the preferred rate.
Determining the report type and the result helps apply the correct FCRA provisions.
2
Determine if the underwriting decision qualifies as an adverse action under the FCRA.
Yes. Charging a higher premium or offering less favorable terms based on a consumer report is defined as an adverse action.
Adverse actions trigger specific notification mandates to protect consumer privacy and rights.
3
Identify the insurer's legal obligation when an adverse action is taken.
The insurer must provide an adverse action notice to the applicant, which must include the name and contact information of the credit reporting agency used.
This allows the consumer to exercise their right to obtain a free copy of the report from the agency and formally dispute any inaccuracies.

Key Concept

Fair Credit Reporting Act (FCRA) - Adverse Action Procedures
Estimated Time:1m 15s
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Topics

Fair Credit Reporting Act (FCRA)

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