Insurers are expressing concern that a recent federal appeals court decision will impose significant new burdens on carriers that use credit information to help determine premiums.
The U.S. Court of Appeals for the Ninth Circuit ruled last week that insurers will have to provide "adverse action" notices to consumers if their credit information disqualifies them for the lowest premiums when a policy is first initiated.
These notices, which are mandated under federal laws governing credit use, were designed to inform the consumer why a decision against them was made and what information it was based on.
"This decision is a very extreme outcome that has the court making law and regulations instead of applying it as Congress wrote the law and as Congress and the Federal Trade Commission should be engaged in applying it," said David Snyder, assistant general counsel for the American Insurance Association.
In the case involved, Rausch v. Hartford Financial Services, the insurance company, as well as other industry groups, argued that notices should only be required in renewal situations.
Mr. Snyder said the decision not only reversed the ruling of the lower courts, but the court's interpretation of the relevant law, the Fair Credit Reporting Act, also imposed new and unfair burdens on insurers.
As an example, he noted that the court's ruling effectively decided what the contents of adverse action notices should look like.
The AIA noted also that the court mandated a notice be issued even when a consumer with no credit history, and thus a neutral credit score, issued on a policy. "This is an area where normally a regulatory agency would determine the rules of play after notice-and-comment rulemaking," Mr. Snyder said.
The AIA took issue with the court's determination of what constituted a "willful violation" of credit laws and how it applied that determination to the case.
In determining what constitutes a "willful violation," Mr. Snyder said that the court "adopted a questionable standard and went on to apply it in an unfair manner against companies that had interpreted the law exactly as did the lower court."
Given what he saw as drastic implications in the court's decision, Mr. Snyder said the AIA "would strongly support any of the parties seeking whatever review is available to them."
Supporters of the decision argued that it will simply help consumers keep informed about the decisions made using their credit background, and that doing so was the intent of Congress in enacting the FCRA.
John Daly, deputy general counsel for litigation for the FTC, said the commission was "very pleased" with the ruling, adding that "all this is about giving people information."
The FTC submitted an amicus brief in the case arguing that the lower court ruling in favor of the insurance industry would, "if upheld, seriously weaken the enforcement of the act and significantly undermine its protections in connection with the underwriting of insurance."
The FTC's brief in the case also noted that the term "adverse action" is defined "very broadly" in the FCRA, to include all business actions "that can be considered to have a negative impact."
Steve Larson, a lawyer with the Portland, Ore.-based firm of Stoll Stoll Berne Lokting & Shlachter P.C. who represented the plaintiffs in the case, said the court's ruling also upholds the rights of consumers to protect themselves, as the FTC does not have the ability to monitor all uses of credit information by companies.
"The FTC has made it clear that insurers have to disclose this information under the Fair Credit Reporting Act, but they do not have the resources to enforce the act, so consumers must use the private rights of action under the Fair Credit Reporting Act to enforce their rights," he said. "That is what this lawsuit is about."
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