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Difficulty: MediumFair Credit Reporting Act (FCRA)

An architect applies for an individual disability income policy. During underwriting, the insurer reviews a standard consumer credit report and discovers a history of severe recent financial delinquencies. Consequently, the insurer decides to issue the policy, but at a significantly higher substandard premium rate. Under the Fair Credit Reporting Act (FCRA), which of the following procedural actions MUST the insurer take regarding this adverse underwriting decision? (Select all that apply)

  1. Provide the applicant with the name, address, and phone number of the consumer reporting agency that supplied the report.Answer
  2. Inform the applicant of their right to obtain a free copy of the credit report directly from the reporting agency within 60 days.Answer
  3. C
    Deliver a complete, physical copy of the credit report to the applicant along with the substandard policy offer.
  4. D
    Include a statement notifying the applicant that the consumer reporting agency was responsible for the premium rate increase.

Answer

The insurer must provide the contact information of the consumer reporting agency and inform the applicant of their right to obtain a free copy of the report within 60 days.
When an adverse action (such as a premium rate increase or coverage denial) is taken based on a consumer report, the FCRA mandates that the insurer provide the applicant with an adverse action notice. This notice must include the name, address, and phone number of the consumer reporting agency that provided the report. Furthermore, it must advise the applicant of their right to obtain a free copy of the report directly from that agency within 60 days.

Step-by-Step Solution

1
Determine if the scenario describes an adverse underwriting action.
Issuing a policy at a significantly higher substandard premium rate based on credit history is classified as an adverse action.
Identifying the nature of the underwriting decision triggers specific FCRA compliance requirements.
2
Identify the mandatory disclosures required by the FCRA following an adverse action.
The insurer must supply the contact information (name, address, phone number) of the consumer reporting agency used.
The applicant must know exactly which agency provided the data so they can follow up.
3
Identify the consumer's statutory rights that must be communicated in the notice.
The applicant must be informed of their right to request a free copy of the report from the agency within 60 days.
The FCRA guarantees consumers the ability to review the specific information that led to the adverse decision.
4
Evaluate the remaining options for common procedural misconceptions.
The insurer is not required to provide the report itself, and must explicitly state the agency did NOT make the underwriting decision.
These misconceptions contradict the distinct separation of duties between insurers and reporting agencies outlined in the FCRA.

Key Concept

FCRA Adverse Action Notification Requirements
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Topics

Fair Credit Reporting Act (FCRA)

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