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Question

Difficulty: MediumFair Credit Reporting Act (FCRA)

A homeowner applies for a personal umbrella liability policy. After reviewing the application, the insurer agrees to issue the policy but at a higher premium rate than standard due to negative data found in the applicant's credit history. Under the Fair Credit Reporting Act (FCRA), what action MUST the insurer take regarding this underwriting decision?

  1. Supply an adverse action notice that includes the name, address, and phone number of the consumer reporting agency.Answer
  2. B
    Provide the applicant with a free, complete copy of the credit report along with the issued policy.
  3. C
    Inform the applicant that they have 3 days to dispute the underwriting decision directly with the consumer reporting agency.
  4. D
    Wait for the applicant to submit a formal written request within 5 days before disclosing the name of the reporting agency used.

Answer

The insurer must supply an adverse action notice that includes the contact information of the consumer reporting agency.
Under the Fair Credit Reporting Act, charging a higher premium based on information in a consumer report constitutes an adverse action. When an adverse action is taken, the insurer must automatically provide the applicant 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 contact the agency to verify or dispute the information.

Step-by-Step Solution

1
Identify the regulation and triggering event.
The event is charging a higher premium based on a credit report, which falls under the Fair Credit Reporting Act (FCRA).
Charging a higher rate than standard is legally classified as an 'adverse action' under the FCRA.
2
Determine the insurer's obligation when adverse action is taken.
The insurer is required to notify the consumer of the adverse action and provide the source of the credit information.
FCRA compliance mandates that consumers know who provided the negative information so they can verify its accuracy.
3
Evaluate the correct procedural requirement.
The insurer must provide the name, address, and phone number of the consumer reporting agency.
This allows the consumer to contact the agency to request a free copy of the report or dispute inaccuracies.

Key Concept

FCRA Adverse Action Notification Requirements
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Topics

Fair Credit Reporting Act (FCRA)

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