COMMISSIONER'S BULLETIN
NO. B-0049-02

August 23, 2002

TO: ALL INSURANCE COMPANIES, CORPORATIONS, EXCHANGES, COUNTY MUTUALS, RECIPROCALS, ASSOCIATIONS, LLOYDS, STIPULATED PREMIUM COMPANIES, OR OTHER INSURERS WRITING AUTOMOBILE, RESIDENTIAL PROPERTY, INDIVIDUAL LIFE, ACCIDENT, OR HEALTH INSURANCE, INCLUDING HEALTH MAINTENANCE ORGANIZATIONS, IN THE STATE OF TEXAS AND TO THEIR AGENTS, REPRESENTATIVES AND THE PUBLIC GENERALLY

RE: FAIR CREDIT REPORTING ACT NOTICE REQUIREMENTS AND USE OF CREDIT SCORING

The purpose of this bulletin is to remind insurers of their obligations under the federal Fair Credit Reporting Act (FCRA) (15 USC Sec. 1681 et seq.) to make certain disclosures to policyholders against whom an adverse action is taken based in whole or part on information contained in or derived from a credit report (known, under FCRA, as a consumer report). For insurance purposes, Sec. 603 of FCRA defines an adverse action as "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." For example, if a person receives a surcharge or less than a maximum discount on an insurance premium as a result of the person's credit score, this would be an adverse action and the person must be provided the FCRA notice.

The Federal Trade Commission has stated that an insurer may obtain a consumer (credit) report if it intends to use the information in connection with the underwriting of insurance, which may include whether or not to issue a policy, the amount and terms of coverage, the duration of the policy, the rates or fees charged, or whether or not to renew or cancel a policy. Any action based on that report that is adverse to the interests of the consumer triggers the notice requirements contained in Sec. 615 of FCRA. These notice requirements, which must be given orally, in writing or electronically, essentially include: notice of the adverse action to the consumer; the name, address, and telephone number of the consumer reporting agency that furnished the report; a statement that the consumer reporting agency did not take the adverse action so it is unable to furnish the reasons why the adverse action occurred; the consumer's right to obtain a free consumer report within 60 days of receiving notice of the adverse action and the consumer's right to dispute the completeness and accuracy of the consumer report. Please review FCRA to be sure you are in compliance with all FCRA requirements.

The purpose of the notice requirements is to put an insurance applicant or policyholder on notice that something in his or her credit file has caused an insurer to treat the consumer unfavorably. With that information, the consumer is able to contact the consumer reporting agency, which must disclose the information in the file, reinvestigate any disputed item, and make any necessary deletions or corrections.

Texas Insurance Code Art. 21.21 prohibits placing before the public any information which is untrue, deceptive, or misleading, and also prohibits misrepresentation of an insurance policy by failing to disclose any matter required by law to be disclosed. (See also 28 Texas Administrative Code Sec. 21.4.)

As such, the Department considers noncompliance with FCRA requirements to also be a violation of state law. Insurers who use credit reports in rating or underwriting of insurance, or use credit reports to determine credit scores that are used in rating or underwriting insurance, whether new or renewal policies, should review their procedures for providing the required notice and, if necessary, take immediate steps to ensure compliance. The Department will investigate and take prompt action as necessary to resolve complaints or allegations that insurers are not providing notice as required by law.

Jose Montemayor
Commissioner of Insurance

For further information, please contact ChiefClerk@tdi.state.tx.us .