Fair Credit Reporting Act
The Fair Credit Reporting Act (FCRA) was passed in 1970 with the purpose of regulating the way credit information is collected and used. The Act requires consumer reporting agencies to implement policies and procedures to preserve the confidentiality, accuracy, relevance, and appropriate utilization of consumer's private credit information. The Federal Trade Commission (FTC) administers the FCRA.
The Fair Credit Reporting Act (FCRA) was passed in 1970 with the purpose of regulating the way credit information is collected and used.
There are two types of reports insurance underwriters will utilize to obtain credit information about an applicant. These are Consumer Reports and Investigative Consumer Reports. Pretext interviews are a third source of information, but are usually prohibited by law.
Consumer Reports are any written, oral, or other communication of information by a consumer reporting agency about a consumer's credit worthiness, character, general reputation, personal characteristics or mode of living which are used to determine a consumer's eligibility for credit, insurance, employment, or other authorized purposes. The person seeking a consumer report on an individual must have a valid business need for the information.
Investigative Consumer Reports contain information on a consumer's character, general reputation, personal characteristics, or mode of living but are obtained through personal interviews with neighbors, friends, or associates of the consumer. Investigative consumer reports do not use credit information from creditors, credit records, or credit reporting agencies. Investigative consumer reports cannot be performed unless the consumer has been notified in writing of the report within three days of when the report was initially requested. Consumers must be informed that they have the right to request additional information about the report; such information must be provided to consumers within five days if requested.
Consumers must be informed at the time of application that a consumer report may be requested, regardless of whether a report is actually ordered or not. Consumers should also be informed that they have the right to request additional information about the report, such as the name of the company that provided them with a report. Such additional information must be provided to consumers within five days if requested. Note, however, that the insurance company cannot tell the client what was in the report or why the client has been denied.
Pretext interviews are interviews in which the interviewer assumes a false identity or refuses to disclose his true identity and interviews a person without disclosing the true purpose of the interview. Pretext interviews are forbidden by law except in cases where there is substantial evidence of fraud, criminal activity or misrepresentation.
Consumer Reporting Agencies
Consumer reporting agencies compile and maintain credit information about consumers nationwide, and issue credit reports to third parties who have a valid business need for the information.
Consumers have the right to request removal of their name and address from lists provided to consumer reporting agencies for any consumer report that was not commenced by a credit or insurance transaction of the consumer. Credit reporting agencies must provide consumers with a way to notify agencies that they do not want their information used. This includes providing consumers with a toll-free number to call. Consumers notifying agencies by phone can request a two-year hold on information; however, if a request is made in writing, the hold on information is permanent unless withdrawn by the consumer.
Consumer Reports Prohibited Information
The following information may not be included in consumer reports unless the consumer credit report is requested for life insurance policies with a face amount of $150,000 or more:
- Bankruptcies dating back more than 10 years
- Civil suits and judgments dating back more than seven years or cases in which the statute of limitations has expired, whichever period is longer
- Tax liens dating back more than seven years
- Adverse information dating back more than seven years
- Reports of a consumer's arrests, indictments or convictions
Consumer Rights
The FCRA requires that applicants receive a notice upon policy application that a credit report may be performed. Consumers have the right to know what is in their credit reports and who has obtained their credit report within the prior year. If an insurer declines to offer coverage or must modify the coverage as a result of the information provided in a consumer or investigative report, the insurer must provide the consumer with the name of the credit reporting agency and address. Consumers have the right to dispute a credit report requiring the credit reporting agency to perform a reinvestigation. If the credit report is discovered to be inaccurate, the report must be corrected and sent to all parties who received a credit report from the agency within the prior two years.
A credit report that prompts an adverse action must be provided to the consumer with a statement of the consumer's rights in writing prior to carrying out the adverse action.
Penalties
Persons accessing credit information are subject to civil and criminal action for failure to comply with the Fair Credit Reporting Act. Persons who fail to comply may be subject to pay a criminal penalty of up to $50,000.
Gramm-Leach-Bliley Act/ Financial Services Modernization Act of 1999
The Financial Services Modernization Act was passed in 1999 with the purpose of allowing financial entities to merge and accommodate greater competition. This law repealed the Glass-Steagall Act, giving insurers the ability to merge with banks, and either financial institution to perform the duties of both. Regardless, any entity acting as an insurer is regulated by its respective state insurance department.
The GLBA defines a consumer as an individual who obtains financial products or services which are to be used primarily for personal, family, or household purposes from a financial institution. A customer is a consumer who has an ongoing relationship with a financial institution.
Collection and disclosure of customers' personal financial information
The GLBA defines collection of information as that which is organized by a person's name or personally identifiable number, such as a social security number or insurance policy number. The GLBA protects against the disclosure of nonpublic personally identifiable information.
Two disclosures must be made to customers. The first disclosure must be made when the customer relationship is established. This occurs when a consumer becomes a customer, such as when an insurance policy is purchased. At this time, the company provides the customer with their privacy policies. The company must provide customers with an update of privacy policies on an annual basis.
The second disclosure must be made before disclosure of protected information. At this time, the company must provide the customer with an opportunity to opt out of this disclosure, and instructions for how to opt out. The disclosure will indicate to what the opt-out applies. The opt-out must be in writing.
National Association of Insurance Commissioners (NAIC)
The NAIC is a membership association of state insurance commissioners. The purpose of the organization is to advance the uniformity of regulation between states in insurance matters without encouraging the imposition of federal regulation. The NAIC does not have legal authority, but has done much to promote the standardization of insurance laws and regulations among the states including the model laws for individual accident and sickness policy provisions, standard valuation laws, and nonforfeiture benefits.
National Association of Insurance and Financial Advisors (NAIFA)
The National Association of Insurance and Financial Advisors, or NAIFA, is an association that works for the best interest of policyholders and seeks to broaden the opportunity and advancement of the individual agent. NAIFA represents the interest of insurance professionals and advocates for a positive legislative and regulatory environment, enhanced business and professional skills and the promotion of ethical conduct of insurance professionals.
Guaranty Associations
State life and health guaranty associations provide a safety net for all member life, health and annuities insurers in a particular state. Guaranty associations protect insureds in the event of insurer insolvency, or inability to pay claims. Guaranty associations protect the insurer, which in turn protects the insured. All life, health and annuities insurers within a state are required to be members of the state guaranty association, unless exempt (i.e., fraternal benefit societies and nonprofit insurers).
There is a dollar limit to how much a guaranty association will pay per policy and per insured. Each state has their own set of limits, such as $200,000 for life insurance death benefits, $100,000 for life insurance cash surrender and $100,000 for health insurance benefits. Insurance producers are not permitted to use the existence of a state guaranty association to induce a sale of insurance or annuities.
Fraud and False Statements (18 USC 1033(e))
The purpose of Fraud and False Statements legislation is to provide punishment for people who willfully engage in insurance fraud or make false statements that affect insurance business and interstate commerce. Commissioners, insurers, agents, and employees of insurers are subject to the provisions of the act.
The purpose of Fraud and False Statements legislation is to provide punishment for people who willfully engage in insurance fraud or make false statements that affect insurance business and interstate commerce.
Whoever is engaged in the business of insurance whose activities affect interstate commerce and knowingly, with the intent to deceive, makes any false material statement or report, or overvalues land, property or security in connection with any financial reports or documents presented to any insurance regulatory official or agency to examine the affairs of such person, and for the purpose of influencing the actions of such official, agency, or examiner, will be punished.
The attorney general can bring a civil action against a person for engaging in fraud or false statements. A person convicted of violation is subject to punishment by a civil fine of up to $50,000 per act or in an amount received or provided in the course of the violation, whichever is greater, or imprisonment for a maximum of 10 years, or both penalties, except that the term of imprisonment will be a maximum of 15 years if the statement or report, or overvaluing of land, property or security jeopardized the safety and soundness of an insurer and was a significant cause of such insurer being placed in conservation, rehabilitation, or liquidation in the appropriate U.S. district court.
Anyone who is convicted of a criminal felony that involves a breach of trust, dishonesty, or a violation of this Act is prohibited from engaging in the business of insurance without first obtaining a waiver of written consent from the appropriate state insurance department Commissioner in the jurisdiction that the person intends to engage in the business of insurance. Any person who fails to obtain such written consent is subject to federal criminal and civil penalties, and administrative actions.
No comments:
Post a Comment