The Federal Fair Credit Reporting Act & State Regulation of Credit Scoring: Chartered & Unchartered Territory for Insurance Companies Post Safeco V. Burr
Co-authored with Marina Karvelas
Two summers ago, in June 2007, the United States Supreme Court issued Safeco Ins. Co. et al. v. Burr, 551 U.S. 47, 127 S.Ct. 2201 (2007). Two years later, Safeco v. Burr, remains a watershed event for insurance companies using credit scoring (or insurance scoring) to assist in underwriting and rating personal insurance policies. As insurance companies re-tool their insurance scoring models or newly enter the field of insurance scoring, they face newly defined obligations under the Fair Credit Reporting Act (“FCRA”), 15 U.S.C. §§ 1681 et seq. because of Safeco v. Burr.
In Safeco v. Burr, the Supreme Court held that: (a) FCRA’s “adverse action” notifications apply to the initial rate offered for new personal insurance, and (b) the trigger for such notification rests not on the failure of the consumer to obtain the “best rate,” but rather, on the insurer’s determination of a “neutral” benchmark.
This article explores several ramifications of the Safeco v. Burr decision that may require future clarification in the courts. For example, while Safeco v. Burr sets forth a “neutral” benchmark as the standard for determining when an insurance company should issue a notice of “adverse action,” it is unclear how much leeway insurance companies have in determining that “neutral” benchmark.
In addition, several state statutes contain definitions of “adverse action” that expressly require an insurance company to issue notice of “adverse action” in circumstances when the consumer fails to receive the “best rate.” These statutes which potentially conflict with FCRA as interpreted by Safeco v. Burr may be preempted.
Finally, although Safeco v. Burr involved a credit-based consumer report, the holdings in this case could be applied to non credit based consumer reports. If so, insurance companies may be saddled with issuing “adverse action” notices when using C.L.U.E. reports or MVRs when they rate new customers for personal insurance.Continue Reading...