Client Alert: PART II: Compounding The Confusion And Exculpating The Confused: Adverse Action Notices Under FCRA: Safeco Insurance Co. Of America V. Burr

On June 4, 2007, the United States Supreme Court ruled on a case much-anticipated by both the insurance industry and the consumer credit industry. The case is significant from a compliance perspective because on one hand the Court clarifies some aspects of “adverse action” notice requirements, but on the other hand, the ruling may cause more confusion about when such notices are required. The holding also resolved a conflict among several Circuit Courts of Appeal as to the proper standard to be applied in determining whether a violation of the FCRA is “willful.” For further analysis on the Court's ruling from a litigation perspective, refer to a companion Client Alert, also issued today, issued by a Lord, Bissell & Brook class action litigation team.

Safeco addresses FCRA requirements for an insurer to notify a consumer if the premium rate class offered such consumer is higher following the insurer’s review of the consumer’s credit report (just one type of consumer report) compared to what rate the consumer would have received if the report had not been considered by the insurance company. This notice obligation applies to applicants seeking a new policy as well as to customers renewing policies who receive higher rates based on their credit reports.

The decision is a mixed bag for insurers. The Supreme Court ruled clearly:

• An “adverse action” can occur at the time of the initial application for insurance, not just at the time of renewal of an existing policy, which may surprise some insurers, as it apparently did Safeco;
• The failure to offer the consumer the insurer’s best premium rate, even if that decision is based on a consumer report, is not necessarily an “adverse action” triggering the need to provide an adverse action notice;
• At renewal time, only an increase over the prior premium rate class, not an increase over the neutral score, would trigger the adverse action notice requirement; and
• While Safeco failed to comply with the adverse action notice requirements, such failure was not ‘wilfull” and thus Safeco is not liable for statutory damages to the consumers involved, given the lack of clarity in FCRA.  more...