Examkin

Question

Difficulty: MediumFair Credit Reporting Act (FCRA)

During the underwriting of an individual disability income policy, an insurer requests a standard consumer report on the prospective insured. The credit reporting agency returns a file showing multiple recent defaults and a high debt-to-income ratio. Consequently, the underwriter decides to approve the coverage but imposes a significant premium surcharge and limits the monthly benefit. Under the Fair Credit Reporting Act (FCRA), what is the insurer legally required to do in response to this underwriting decision?

  1. Issue an adverse action notification to the applicant that includes the identifying details of the agency that generated the report.Answer
  2. B
    Forward a complete physical or electronic copy of the consumer report directly to the applicant for verification.
  3. C
    Direct the applicant to submit a formal dispute regarding the credit history directly to the insurer's underwriting department.
  4. D
    Obtain additional written authorization from the applicant before legally applying a premium surcharge based on the credit findings.

Answer

The insurer must issue an adverse action notification to the applicant that includes the identifying details of the agency that generated the report.
When an insurer makes an adverse underwriting decision—such as denying coverage, increasing premiums, or reducing benefits—based on a consumer report, the Fair Credit Reporting Act (FCRA) requires the insurer to provide an adverse action notice. This notice must inform the applicant that the decision was based on the report and must include the name, address, and phone number of the consumer reporting agency so the applicant can obtain a copy and dispute any inaccuracies.

Step-by-Step Solution

1
Analyze the underwriting outcome described in the scenario.
The applicant was issued a policy with reduced benefits and a higher premium due to information discovered in a consumer report.
This determines if an 'adverse action' has occurred under the Fair Credit Reporting Act, which triggers specific regulatory requirements.
2
Identify the legal obligations triggered by an adverse action under the FCRA.
The FCRA mandates that the consumer must be informed of the adverse action and given the contact information of the reporting agency.
This ensures the consumer knows why they received substandard terms and knows who to contact to review or dispute the information.
3
Evaluate the given options against FCRA mandates.
Only the option stating the insurer must issue an adverse action notification with the agency's details meets the federal requirement.
Insurers are not legally required to provide the report themselves, handle disputes directly, or get extra authorization for the surcharge.

Key Concept

Fair Credit Reporting Act (FCRA) Adverse Action Requirements
Rate this question

Topics

Fair Credit Reporting Act (FCRA)

More questions from this topic