5.4 Fair Credit Reporting Act of 1970
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:
- personal habits;
- lifestyle;
- reputation;
- health; and
- occupation.
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.
