United States
Hong KongConsumer reports and the Fair Credit Reporting Act
The Fair Credit Reporting Act governs consumer reports used in underwriting. Applicants must be told a report may be obtained, may ask what an investigative report covers, and must be told the source if an adverse decision rests on one. The Act regulates the process, not the underwriting decision.
This is a federal statute in an insurance exam, and candidates treat it as background reading. It is not. The outline gives it its own sub-item under underwriting, and the questions it produces are about process rights, which are easy marks if you know the four of them.
Two kinds of report
| Consumer report | Investigative consumer report | |
|---|---|---|
| Content | Information from records: credit, claims history, public records | Information from interviews about character, reputation and lifestyle |
| How it is gathered | Compiled from files | Personal interviews with neighbors, associates, employers |
| Notice to the applicant | That a report may be obtained | Written notice, and the right to request the nature and scope |
| When it is used | Routinely | Larger cases, or where something needs checking |
The investigative report is the one with the extra rights attached, because somebody is asking your neighbors questions about you. Notice is not optional and the applicant may ask what the investigation actually covers.
The four rights worth memorizing
- Notice that a report may be obtained, given at or before the application.
- For an investigative report, written notice and the right to request its nature and scope.
- If an adverse decision is based in whole or in part on a report, notice of that fact and the name and address of the reporting agency.
- The right to obtain the information from the agency and to dispute what is inaccurate.
Note what right three does not include. The insurer does not have to give the applicant the report. It has to say a report was used and where it came from, and the applicant then goes to the agency. Confusing those two is the standard wrong answer here.
An insurer declines an application partly because of information in a consumer report. What must it tell the applicant?
- The contents of the report
- That a report was used, with the name and address of the reporting agency
- Nothing, since underwriting decisions are confidential
- The name of the individual who supplied the information
Where this sits alongside the other privacy rules
Section III lists four separate federal obligations across its sub-items: HIPAA privacy and HIV consent at the point of sale, the USA PATRIOT Act and anti-money laundering, the Gramm-Leach-Bliley privacy rules, and the Fair Credit Reporting Act here under underwriting. They overlap in subject and differ in purpose.
- Fair Credit Reporting Act
- Accuracy and disclosure in reports used for underwriting
- Gramm-Leach-Bliley
- Notice and limits on sharing nonpublic personal information
- HIPAA
- Protection of health information
- USA PATRIOT Act
- Anti-money laundering programs and reporting
One line each is the right depth. Section III carries 12 questions across nine sub-items plus underwriting and delivery, so the federal statutes are competing for perhaps one or two of them between the four.
The Texas overlay
The Texas portion has its own privacy and information content, including consent for AIDS testing, and it points at the Administrative Code for the detail. We hold the Insurance Code but not Title 28, so where the specific consent form requirements live only in a rule, this site does not state them. The general portion tests the federal framework, which is what this page covers.
The opinion, and the concession
Fifteen minutes, once, and then leave it. The temptation with a federal statute is to read about it properly, and properly here means a great deal of material that is not examinable at this level. What the exam wants is the two report types and the disclosure obligations. Anything past that is reading for its own sake.
The concession: the Act has been amended repeatedly and carries obligations for insurers that go well beyond the four rights above, particularly around risk-based pricing notices. We are describing what the outline lists. If you go on to work in underwriting, the compliance training you get from a carrier will be more current than any exam prep material, ours included.
Common questions
What is an investigative consumer report?
A report based on personal interviews with neighbors, associates or employers about character, reputation and lifestyle, rather than compiled from files. Because it involves people being asked about you, the applicant must receive written notice and may request the nature and scope of the investigation.
Does an insurer have to show an applicant the report?
No. Where an adverse decision rests in whole or in part on a consumer report, the insurer must say so and give the name and address of the reporting agency. The applicant then obtains the information from the agency and may dispute anything inaccurate.
When must the applicant be told a report may be obtained?
At or before the time of application. The notice is part of the application process rather than something that follows a decision, and for investigative reports it must be in writing and carry the right to ask what the investigation covers.
Does the Act control what an insurer may underwrite on?
No. It regulates the accuracy of reports and the disclosure around their use, not the substance of the underwriting decision. What an insurer may and may not classify on in Texas is a matter for the Insurance Code, which prohibits unfair discrimination at TIC 544.002.