A large national insurance company is developing new underwriting guidelines that include the use of consumer credit information. Under the Fair Credit Reporting Act (FCRA), what obligation does the insurer have if an adverse underwriting decision (e.g., denial of coverage or higher premium) is made based, in whole or in part, on an individual's credit report?
- AThe insurer must notify the individual that a credit report was used but is not required to disclose the specific reason for the adverse decision.
- BThe insurer must provide the individual with the name and address of the consumer reporting agency that supplied the report, along with a statement about the individual's right to obtain a free copy and dispute inaccurate information.
- CThe insurer must provide the individual with a copy of their credit report and a detailed explanation of how it influenced the decision.
- DThe insurer must obtain written consent from the individual before accessing their credit report for underwriting purposes.
Show answer & explanationAnswer & explanation
Correct answer: B. The insurer must provide the individual with the name and address of the consumer reporting agency that supplied the report, along with a statement about the individual's right to obtain a free copy and dispute inaccurate information.
Under FCRA, if an adverse action is taken based on a consumer report, the user of the report (the insurer) must provide the consumer with the name, address, and phone number of the consumer reporting agency, a statement that the agency did not make the decision and cannot explain why, and notice of the consumer's right to obtain a free copy of the report and dispute its accuracy.
Why the other options are wrong
- A. The insurer must disclose the adverse decision reason and the credit reporting agency's information.
- C. The insurer is not required to provide the credit report itself or a detailed explanation of its influence, but rather the information to allow the consumer to obtain it and understand their rights.
- D. Consent is generally implied for insurance underwriting based on permissible purpose, not always explicit written consent for each access.
Fair Credit Reporting Act (FCRA) - Adverse Action
A federal law that regulates the collection, dissemination, and use of consumer credit information. When an adverse action (e.g., denial of credit, insurance, or employment) is taken based on a consumer report, the user must provide specific disclosures to the consumer.
- Protects consumer privacy of credit information
- Ensures accuracy and fairness of credit reports
- Mandates disclosures when adverse actions occur due to credit reports
Memory trick: Credit Report Users Must Disclose, Protect, and Correct.