Compliance Guidelines
For the Use of
Driving Records,  Consumer Reports
and Credit Scores

This memorandum is not intended to provide specific advice about individual legal, business or other questions. It was prepared solely for use as a guide, and is not a recommendation that a particular course of action be followed. If specific legal or other expert advice is required or desired, the services of an appropriate, competent professional, such as an attorney, should be sought.

INTRODUCTION

This memorandum generally describes the federal Fair Credit Reporting Act ("FCRA" or "Act") and the obligations of insurance agents with respect to the use of driving records, consumer reports (sometimes referred to as credit reports), and credit scores under the Act. It does not address other aspects of the FCRA or any requirements on insurance agents under state laws. It is divided into sections as follows: FAIR CREDIT REPORTING ACT OVERVIEW; DRIVING RECORD AND CONSUMER REPORT PRACTICES; CREDIT SCORE PRACTICES; OTHER CREDIT AND INSURANCE-RELATED INFORMATION; and REQUIRED FORMS.

FAIR CREDIT REPORTING ACT OVERVIEW

The FCRA was enacted in 1970 to protect the privacy of consumers’ credit information and to assure that the information is as accurate as possible. The Act applies only to information about individuals. Information about entities, such as corporations and partnerships, is not regulated by the Act.

The FCRA imposes requirements on the collection and dissemination of certain information regarding individuals. These requirements apply not only to consumer reporting agencies and those who furnish information to them, but also to users of consumer reports, such as insurance agents. Under the Act, consumer reports include information about an individual’s personal and credit characteristics, such as his/her credit history and driving record.

The FCRA is enforced by the Federal Trade Commission ("FTC"). Violations of the FCRA’s requirements can result in fines of up to $1,000 per violation for actions initiated by consumers, plus punitive damages, attorney’s fees, and costs of the lawsuit. Actions initiated by the FTC can result in penalties of up to $2,500 per violation.

DRIVING RECORD AND CONSUMER REPORT PRACTICES

Insurance agents sometimes are asked to provide services to their clients that assist the clients in evaluating potential employees. These services range from providing to the clients copies of current or potential employees’ driving records from state agencies to providing insurability assessments based on driving records. Agents also may be asked to provide other consumer reports on clients’ current or potential employees, including information prepared by consumer reporting agencies on credit worthiness, credit standing/capacity, and other personal characteristics used as a factor in establishing eligibility for employment. Some IIAA state associations also provide driving records and other consumer reports to insureds and member agents. All of these practices are regulated by the FCRA.

The FCRA requirements applicable to these practices can be satisfied by taking all of the following steps:

  1. Prior to responding to a request for driving records, insurability assessments based on driving records or consumer reports, obtaining from the client either:

  1. A document signed by the job applicant/employee that consists solely of an authorization to obtain the applicant’s/employee’s driving records and/or consumer reports, and stating any necessary information required to conduct the driving records or consumer reports research. or

b) A document signed by the client that states that the client-insured has reviewed its obligations as a user under the FCRA and that the client-insured: (i) certifies that it has received or will receive in advance of requesting information about the driving records of or consumer reports about any applicant/employee an authorization in which the applicant/employee authorizes in writing the procurement of his/her driving records or consumer reports; (ii) acknowledges that the authorization will be kept on file in the Company’s office as required by law; and (iii) agrees to timely provide all required notices to the applicant/employee.  It should be noted that the Act is not specific about whether this document must be provided prior to each driving records or consumer reports request, or if it may be provided once for all future requests. While the most cautious approach is to require the client-insured to provide the document prior to each driving records or consumer reports request, the lack of a statutory mandate has led many to conclude that one comprehensive document is adequate.

2.      Providing a copy of the FTC "Prescribed Summary of Consumer Rights" with every driving record, insurability assessment or consumer report that it transmits to clients-insureds.

3.      Providing a copy of the FTC "Prescribed Notice of User Responsibilities" to each client- insured that uses the driving records-related or consumer reports services. This notice only needs to be provided once

4.      Retaining copies for at least two years after the date of the request of whatever the insurance agent relies upon to document the right to respond to driving records or consumer reports requests.

The consumer is entitled to obtain from the credit reporting agency a copy of all information in his/her file, and a list of everyone who requested it during the two year period preceding the consumer’s request for information. The only exception to this disclosure requirement is that the consumer is not entitled to information concerning credit scores or other evaluations of credit worthiness or insurability.

CREDIT SCORE PRACTICES

Insurance agents frequently obtain insurance application information from potential policyholders, either in person or on the telephone. During such a conversation, the agent may be able to determine the insurability of the customer based solely on information provided by the customer. However, often that information is supplemented by reviewing the customer’s credit report. The "credit score" included in that credit report sometimes is used to determine whether the customer is eligible for insurance from one of the companies the agent represents and for which policies the customer is eligible.

The FCRA does not apply to insurability decisions based on credit scores if:

  1. the client is an entity, such as a corporation or partnership, rather than an individual;

  1. the agent informs the customer that he/she is ineligible for insurance from one of the companies the agent represents and that determination is based solely on information provided by the customer; or

  2. the customer purchases insurance from the agent, regardless of the cost of that insurance or the scope of its coverage.

In all other situations in which credit scoring is used to make insurability decisions, the FCRA does apply. If the FCRA does apply, and if an action is taken that is considered to be an "adverse action" under the FCRA, then an adverse action notification must be provided to the consumer. In general terms, the Act defines an "adverse action" to be an action adverse to the interests of the consumer, such as: (i) a denial or cancellation of, an increase in any charge for, or a reduction or unfavorable change in the terms of coverage or amount of insurance; or (ii) a denial of employment or other employment decision adverse to a job applicant/employee. The specific facts will determine if an "adverse action" notification should be provided to the customer, as follows:

1. If the agent reviews the customer’s credit report and the request for insurance is completely denied, an "adverse action" notification must be provided to the customer.

  1. If the agent reviews the customer’s credit report and the customer is offered insurance on less preferential terms than he/she sought, it is prudent to provide an adverse action notification to the customer if:

  1. the customer believed he/she had completed an application for insurance at the conclusion of the initial interview; and

b) he/she does not accept the less preferential terms.

Although the FCRA is not specific about its applicability to this situation, providing the adverse action notification is a wise course of action.

Absent an agreement or standardized process between an agent and the companies he/she represents, any adverse action notification burden would fall on the person who actually makes the coverage eligibility determination. For example, if the agent submits an application to an insurer for coverage at the "preferred rate" and the application is completely denied, then the Company is responsible for satisfying the adverse action notification obligation required by the FCRA. However, if the agent determines that the customer’s application should be denied, the agent would be required to provide the adverse action notification.

To comply with the requirements of the FCRA, an adverse action notification must cover four things:

In addition, the adverse action notification to the consumer must be accompanied by the FTC’s "Prescribed Summary of Consumer Rights."

OTHER CREDIT AND INSURANCE-RELATED INFORMATION

Insurance agents also may be required to satisfy FCRA requirements if they are providing credit or insurance-related information to consumer reporting agencies or third parties, or if the agents use information obtained from consumer reporting agencies for any reason. For example, the FCRA permits an insurance agent to obtain information from consumer reporting agencies to make solicitations for the purchase of insurance products that are not initiated by the customer, if the insurance agent provides to the customer with each written solicitation a "clear and conspicuous statement" with each written solicitation stating that:

  1. information contained in the customer’s consumer report was used;

  2. the customer received the solicitation because he/she satisfied certain credit worthiness or insurability criteria;

  3. if applicable, the credit or insurance may not be offered if, after the customer responds to the offer, he/she does not meet the criteria used to select the customer for the offer or any applicable credit worthiness or insurability criteria; and

  4. the customer has the right to prohibit information contained in his/her consumer credit file from being used in connection with any insurance solicitation not initiated by the customer by notifying the appropriate CRA.

REQUIRED FORMS

Three notification forms prescribed by the FTC are attached. These forms address many of the FCRA’s obligations and requirements that apply in a variety of contexts. The first form outlines the rights of consumers whose credit information is released or disclosed; the second form describes the obligations imposed on anyone who furnishes information to a credit reporting agency; and the third lists the responsibilities of anyone who uses or relies upon the information obtained from a consumer reporting agency to make or assist with the making of any credit, insurance or employment-related decision.

Form 1 Rights of Consumers

Form 2 FTC Prescribed Notice of Furnisher Responsibilities

Form 3 FTC Prescribed Notice of User Responsibilities

Letter #1 – Sample Letter Certifying Receipt of Authorization to Obtain Driving Records and Consumer Reports – Signed by Client-Insured

Letter #2 – Sample Letter Authorizing Consumer Reports and/or Driving Records to be Obtained – Signed by Job Applicant/Employee