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Difficulty: MediumFair Credit Reporting Act (FCRA)

After reviewing a standard consumer credit report, an underwriter decides to issue a life insurance policy to an applicant at a substandard, higher premium rate due to a history of severe debt. According to the Fair Credit Reporting Act (FCRA), what procedural obligation must the insurer fulfill?

  1. Provide an adverse action notice that includes the name and contact information of the consumer reporting agency.Answer
  2. B
    Directly provide the applicant with a printed copy of the credit report along with the modified policy offer.
  3. C
    No specific notification is required because issuing a policy, even at a higher rate, is not considered an adverse action.
  4. D
    Instruct the consumer reporting agency to explain the specific underwriting decision and premium increase to the applicant.

Answer

The insurer must provide an adverse action notice containing the contact information of the consumer reporting agency that supplied the report.
The correct answer accurately reflects the Fair Credit Reporting Act (FCRA) requirements. When an insurer takes an adverse action (which includes charging a higher premium) based wholly or partly on information in a consumer report, the insurer must provide the applicant with an adverse action notice. This notice must supply the name, address, and telephone number of the consumer reporting agency that furnished the report, informing the consumer of their right to obtain a free copy of the report and dispute its contents.

Step-by-Step Solution

1
Determine if the insurer's decision qualifies as an adverse action.
Charging a higher (substandard) premium based on a consumer report is legally defined as an adverse action under the FCRA.
An adverse action includes any decision that negatively impacts the consumer, such as denial of coverage, cancellation, or increased rates.
2
Identify the insurer's required response to an adverse action.
The insurer must provide an adverse action notice to the applicant.
The FCRA mandates that consumers be informed when their credit information negatively impacts their insurance eligibility or pricing.
3
Identify the required contents of the adverse action notice.
The notice must include 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 and dispute any inaccurate information.

Key Concept

FCRA Adverse Action Procedures
Estimated Time:1m 15s
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Topics

Fair Credit Reporting Act (FCRA)

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