FACT Act Addresses Changes for Fair Credit Reporting Act

February 18, 2004

The Fair and Accurate Credit Transactions (FACT) Act of 2003 will impact property/casualty insurers primarily in the areas of sharing information among affiliates and providing consumers with adverse action notices on non-renewals, according to legal experts and public policy analysts. The specific regulations of the FACT Act were detailed at a recent seminar sponsored by the Property Casualty Insurers Association of America (PCI) for their members.

“The FACT Act does not replace the Fair Credit Reporting Act (FRCA). However, any deletions or additions to FRCA are now neatly packaged in the new FACT Act and specifically address how consumer report information must be handled,” Kathleen Jensen, PCI counsel told attendees.

Jensen said that there are two critical factors insurers should note regarding this new law. The first change is there is a new provision that prohibits a company from sharing with an affiliate “consumer report information” for marketing or solicitation purposes without first providing a notice and an opt-out.

“In other words, companies will not be required to send notices when sharing information with company affiliates, even for marketing purposes, if the information did not come from a ‘consumer reporting agency’ that gathers the information for a ‘fee’ and for the use of third parties,” Jensen said.

A number of the definitions that did not change from FCRA are key to understanding some of the changes that are a part of the FACT Act, Jensen explained.

Those definitions are:

·Consumer Report – means any written, oral, or other communication of any information by a consumer reporting agency bearing on a consumer’s credit worthiness, credit standing, credit capacity, character, which is used or expected to be used or collected for the purpose of serving as a factor in establishing the consumer eligibility for insurance to be used primarily for personal, family, or household purposes. This definition still excludes a report from a consumer reporting agency that is of transactions and experience that is communicated between affiliates.

·Consumer Reporting Agency – means any person which, for monetary fees, dues, or on a cooperative nonprofit basis, regularly engages in whole or in part in the practice of assembling or evaluating consumer credit information or other information on consumers for the purpose of furnishing consumer reports to third parties, and which uses any means or facility of interstate commerce for the purpose of preparing or furnishing consumer reports.

·Adverse Action – means a denial or cancellation of an increase in any charge for or a reduction or other adverse or unfavorable change in the terms of coverage or amount of, any insurance, existing or applied for, in connection with the underwriting of insurance;

“If a company takes an adverse action on a nonrenewal or application for new business because of a consumer report, then the company still must provide a notice,” Jensen explained. “Additionally, if a company takes an adverse action based upon what an affiliate has told them, then the consumer must be notified of that action.”

The second key factor is that the FACT Act makes it clear that no state is allowed to prohibit the exchange of information between affiliates.

“The number of this section changed, but the wording did not and therefore the directive for a state remains the same,” Jensen said.

A panel of attorneys discussed some of the implications of the FACT Act. Kevin Fitzgerald and Brian Kass, both of Foley Lardner, Milwaukee, Wis.; Kevin Kelly, Lord, Bissell & Brook, Chicago, Ill. And Nancy Perkins, Arnold and Porter, Washington D.C. participated in the panel. The panel also addressed some of the general new provisions in the FACT Act.

Some of amended sections of the FCRA include.

·Applicability to credit scores developed by another person. The consumer reporting agency does not have to provide an explanation or a process to a consumer if that agency is merely distributing a score developed by another person. The agency only has the duty to provide the consumer with the name, address and website for contacting the person who developed the score or developed the methodology of the score.

·Adverse Action notices, requirements for users of consumer reports. Users making a written insurance solicitation on the basis of information contained in a consumer file must include the address and toll free number of the appropriate person to be notified. This is a change to the existing requirement for sending out the adverse action notice.

·Affiliate Sharing. Any person that receives from another person related to it by common ownership or affiliated by corporate control a communication of information that would be a consumer report (must be put together by a consumer reporting agency for a third party) may not use the information to solicit for marketing purposes unless:

·A notice is given.

·The consumer is given an opportunity to opt-out of sharing the information.

·The opt-out is effective for at least five years.

·After five years must provide another opportunity to opt-out.

·There is no retroactivity (any information obtained prior to the rules promulgated can still be shared with an affiliate without first providing a notice or an ability to opt-out).

“There are several exceptions to these requirements such as information that is shared as part of an employee benefit, responding to a consumer request or if a pre-existing business relationship exists such as through an existing financial contract or purchase within the last 18 months or an application filled out by the consumer within the last three months,” Jensen added. “Finally, the regulations regarding how a company must dispose of consumer report information have not been issued at this time.”

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