You learned a little bit about the Fair Credit Reporting Act of 1970 in Lesson 1 while studying the history of regulation. Now it's time to elaborate for more detail. As most everyone is aware, almost every type of financial transaction in our society relies on credit reports. It is a common belief that those who are responsible enough to take care of their credit are responsible enough to enter into additional financial agreements; and insurance is a financial agreement. It takes the insurer time and money to process an application and the insurer must make every effort possible to make sure the policies they write are covering those who are responsible enough to maintain the agreement at least long enough for the insurer to recoup its expenses during the process. A prematurely lapsed policy does no one any good. Various consumer reporting agencies can supply the insurer with consumer investigative reports (inspection reports). Under the Fair Credit Reporting Act, the applicant must be informed that such a report may be made. To obtain this report for the insurance company, the agency can conduct personal interviews with the applicant's neighbors, friends, family members, business associates, etc., to investigate such areas as:
Usually, these reports are not requested unless the applicant is requesting a large amount of insurance coverage. If any adverse information is supplied that results in coverage being denied or approved with higher premium rates, the applicant must be notified within three days and given the name of the consumer reporting agency used. If the applicant requests a summary of the nature and scope of the investigation, the insurer must provide that information within five days. HIPAA DisclosuresThe Health Insurance Portability and Accountability Act (HIPAA) enforces specific requirements for health care providers with respect to the disclosure of patients' health and medical information. Health care providers are required to preserve patient confidentiality by protecting this information. If the information is inadvertently disclosed, the provider must mitigate harm to the patient. Insurers and agents both have similar responsibilities in regards to health information. When an applicant is examined medically for underwriting purposes, all their medical information must remain confidential in order to protect the applicant's privacy. If the insurer needs to share this information (for example, with medical professionals), including any information related to potential HIV infection, the applicant MUST be given full notice of the insurer's practice in handling the medical information. The applicant has the right to maintain privacy and also must be given the right to refuse permission for the insurer to disseminate the information.
 Agents are sometimes referred to as field underwriters and are responsible for initiating the process (i.e., solicitation, application, etc.). Each application must be signed by the proposed insured, the policyowner (if different from the insured), and the agent. The application must contain the name of the insurance company, the name of the soliciting agent, and the agent's I.D. number. In Florida, a child must be at least 15 years of age to sign a life insurance application; otherwise, an adult (i.e., parent or legal guardian), must sign for and on the minor's behalf. The preferred risk is favored by insurers. These are individuals who offer a lower risk for the insurer than a standard risk and are rewarded with generally lower premium rates. Even though all insurance companies develop their own outline of what they consider a "standard risk," the premiums are higher than preferred risks. Premiums for substandard risks would be significantly higher than those for standard risks. There are basically three sections in a typical life insurance application:
PART I is the front or initial part of the application which contains personal information about both the applicant and the proposed insured - general information such as the type of policy, amount of insurance, name, address, birth date, gender, marital status, smoker or nonsmoker, occupation, and income. PART II is the medical section and contains questions about the proposed insured's health, at the present time and in the past. The insurer can request an attending physician's statement if more information is needed on the medical portion of the application. An attending physician's statement does not necessarily have to be completed by a physician, but the person must be a duly qualified person, such as a nurse. PART III is the agent's report in which the agent presents his "observations" about the applicant. The agent's report also must state if the policy being applied for is a replacement policy. Special Questionnaires are relied upon when an underwriter requires additional information in order to assess the risk properly, such as when the proposed insured's hobby is skydiving. The Medical Information Bureau (MIB) is a nonprofit organization whose main purpose is to be a reliable source of medical information for their more than 700 member insurance companies. Various consumer reporting agencies can supply the insurer with consumer investigative reports (inspection reports). Under the Fair Credit Reporting Act, the applicant must be informed that such a report may be made. Usually, these reports are not requested unless the applicant is requesting a large amount of insurance coverage. If any adverse information is supplied that results in coverage being denied or approved with higher premium rates due to the credit report, the applicant must be notified within three days and given the name of the consumer reporting agency used. If the applicant requests a summary of the nature and scope of the investigation, the insurer must provide that information within five days. In order to provide the applicant with a lower premium rate, the insured's age as stated in the policy can be backdated in order to save age (usually up to six months). However, the insured must pay the backdated premium payments, and the policy's anniversary date will also be as it would have been if the policy had been purchased using the new effective date as well. Term insurance for interim coverage is designed to allow the insured immediate coverage and yet defer the actual effective date of the policy (usually 1-11 months), allowing the insured to also defer premium payments.
The information contained in Unit 9 of the Florida study manual has been presented in Lesson 5 of the online course.
The Fair Credit Reporting Act (FCRA) is a federal law that regulates the collection of consumers' credit information and access to their credit reports. It was passed in 1970 to address the fairness, accuracy, and privacy of the personal information contained in the files of the credit reporting agencies.
The Fair Credit Reporting Act is the primary federal law that governs the collection and reporting of credit information about consumers. Its rules cover how a consumer's credit information is obtained, how long it is kept, and how it is shared with others—including consumers themselves. The Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) are the two federal agencies charged with overseeing and enforcing the provisions of the act. Many states also have their own laws relating to credit reporting. The act in its entirety can be found in United States Code Title 15, Section 1681. The three major credit reporting bureaus—Equifax, Experian, and TransUnion—as well as other, more specialized companies, collect and sell information on individual consumers' financial history. The information in their reports is also used to compute consumers' credit scores, which can affect, for example, the interest rate they'll have to pay to borrow money.
The Fair Credit Reporting Act (FCRA), Public Law No. 91-508, was passed in 1970 by the U.S. Congress to promote accuracy, fairness, and the privacy of personal information found in credit reports. The Fair Credit Reporting Act (FCRA) describes the kind of data that the bureaus are allowed to collect. That includes the person's bill payment history, past loans, and current debts. It may also include employment information, present and previous addresses, whether they have ever filed for bankruptcy or owe child support, and any arrest record. FCRA also limits who is allowed to see a credit report and under what circumstances. For example, lenders may request a report when someone applies for a mortgage, car loan, or another type of credit. Insurance companies may also view consumers' credit reports when they apply for a policy. The government may request it in response to a court order or federal grand jury subpoena, or if the person is applying for certain types of government-issued licenses. In some, but not all, instances, consumers must have initiated a transaction or agreed in writing before the credit bureau can release their report. For example, employers can request a job applicant's credit report, but only with the applicant's permission.
The Fair Credit Reporting Act (FCRA) mandates that when somebody pulls a credit report they specify for what purposes. For instance, in conjunction with a loan request, for employment purposes, or as part of a credit check by a landlord. Impermissible uses are violations of the FCRA. Consumers also have a right to see their own credit reports. By law, they are entitled to one free credit report every 12 months from each of the three major bureaus. They can request their reports at the official, government-authorized website for that purpose, AnnualCreditReport.com. Under FCRA, consumers also have a right to:
If the credit bureau fails to respond to their request in a satisfactory manner, a consumer can file a complaint with the CFPB. Say that somebody is looking to rent an apartment and the landlord denies their application, claiming it is because of their credit score. The potential tenant believes this to be a lie, suspecting that it is because of their skin color or religion instead, which is an unlawful reason to deny the lease. Under the FCRA, you can request your credit report and see if the information you receive is in line with the landlord's claims. You can also see if the landlord actually pulled your credit or simply lied about it. If a violation did occur, the landlord could be fined.
The FCRA requires that a lender, insurer, landlord, employer, or anybody else seeking somebody's credit report have a legally permissible purpose to obtain the report. The FCRA also states that credit rating agencies must remove negative credit information after seven years and bankruptcies after seven–10 years (depending on the type of bankruptcy involved).
Each violation may carry a fine of between $100 and $1,000. If damages are incurred, actual and punitive damages may also be imposed in addition to attorney's fees. Criminal charges may apply if somebody knowingly and willfully obtains information from a consumer reporting agency under false pretenses.
An employer or potential employer may request an individual's credit report for internal purposes only. The individual must have consented to such a request, and the employer must specify it is being pulled only for employment purposes.
As a federal law, the enforcement of the FCRA falls to the Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB). |
At what point must a life insurance applicant be informed of their rights to fall under the Fair Credit Reporting Act?
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