Chapter Two: Consumer Issues and Regulations

Which of the following correctly states the maximum penalty for a person in violation of the Fair Credit Reporting Act?

Criminal penalty up to $50,000 Persons accessing credit information are subject to civil and criminal action for failure to comply with the Fair Credit Reporting Act. Persons who fail to comply may be subject to pay a criminal penalty of up to $50,000.

All of the following may not be included in a consumer report, unless the consumer credit report is requested for a life insurance policy with a face amount of $150,000 or more, EXCEPT:

Adverse information dating back more than three years Adverse information dating back more than seven years is prohibited.

According to the Fair Credit Reporting Act, consumer reports can have which of the following information?

Information concerning an individual's character Consumer reports are reports about the characteristics of an individual, including the individual's general character and reputation, employment history, living arrangements, and credit worthiness.

Which of the following correctly identifies the two types of reports insurance underwriters use to obtain credit information about an applicant?

Investigative consumer reports and consumer reports There are two types of reports insurance underwriters will utilize to obtain credit information about an applicant. These are consumer reports and investigative consumer reports. Pretext interviews are a third source of information, but are usually prohibited by law.

The purpose of a state life and health guaranty association is:

To make sure policyholders claims are paid when an insurer becomes insolvent Life and health guaranty associations provide a safety net for all member life, health and annuities insurers in a particular state. Guaranty associations protect insurers in the event of insurer insolvency, or inability to pay claims, thus also providing protection to policyholders of insolvent insurers.

With respect to life and health insurance guaranty associations, what are agents prohibited from doing?

Using the existence of the life and health guaranty association as an inducement to selling an insurance contract Insurance producers are not permitted to use the existence of a state guaranty association to induce a sale of insurance or annuities.

All of the following policies and contracts are typically covered by state insurance guaranty associations, EXCEPT:

A universal life insurance policy issued by a fraternal benefit society Most state insurance guaranty associations do not insure policies issued by fraternal benefit societies and non-profit insurers.

All of the following statements are true regarding the guaranty association, EXCEPT:

All life and health insurance policies are covered by the guaranty association Certain policies are not covered by the guaranty association, such as HMOs and policies from fraternal benefit societies.

The Fair Credit Reporting Act states that generally, consumer reports cannot contain the following information, EXCEPT:

An individual's character Consumer reports are reports about the characteristics of an individual, including the individual's general character and reputation, employment history, living arrangements, and credit worthiness.

What governmental agency operates the Fair Credit Reporting Act?

Federal Trade Commission The Federal Trade Commission (FTC) administers the Fair Credit Reporting Act (FCRA).

The purpose of the Gramm-Leach-Bliley Act is to:

Allow financial entities to merge and accommodate greater competition The Financial Services Modernization Act was passed in 1999 with the purpose of allowing financial entities to merge and accommodate greater competition. Formerly prohibited by law, this legislation gave insurers the ability to merge with banks, and either financial institution to perform the duties of both. Regardless, any entity acting as an insurer is regulated by its respective state insurance department.

With regard to an investigative consumer report, consumers must be informed that they have the right to request additional information about the report; such information must be provided to consumers within ____ day(s) if requested.

Five Consumers must be informed that they have the right to request additional information about the report; such information must be provided to consumers within five days, if requested.

Bob has a second mortgage with XYZ bank, and Shirley has one checking and two savings accounts with ABC bank. Shirley decides to cash one of her paychecks at XYZ bank because she doesn't have time to stop at her bank. Which of the following is true under the Gramm-Leach-Bliley Act?

Bob is a customer of XYZ bank and Shirley is a consumer of XYZ bank. Bob has an ongoing relationship with XYZ bank, and is therefore a customer. Shirley doesn't normally bank at XYZ bank, but merely cashed one of her paychecks at XYZ bank, so she is a consumer.

Who is subject to the provisions of the Fraud and False Statements Act?

State Insurance Commissioners Insurance companies Agents Commissioners, insurers, agents, and employees of insurers are subject to the provisions of the Fraud and False Statements Act.

When an insurer requests an investigative consumer report on an applicant, which of the following is true?

The report includes information regarding the applicant's general reputation and personal characteristics. The investigative consumer report does not include information about the applicant's personal credit information obtained from creditors.

A written report about a consumer's character, general reputation, personal characteristics, or mode of living but are obtained through personal interviews with neighbors, friends, or associates of the consumer is a(n):

Investigative consumer report Investigative consumer reports contain information on a consumer's character, general reputation, personal characteristics, or mode of living but are obtained through personal interviews with neighbors, friends, or associates of the consumer.

An insurer requests an investigative consumer report on an applicant. All of the following are true, EXCEPT:

The credit report includes information about the applicant's account balances. The investigative consumer report does not include information about the applicant's personal credit information obtained from creditors.

Investigative consumer reports cannot be performed unless the consumer has been notified in writing of the report within ______ day(s) of when the report was initially requested.

Three Investigative consumer reports cannot be performed unless the consumer has been notified in writing of the report within three days of when the report was initially requested.

What is the purpose of the Fair Credit Reporting Act?

To regulate the way credit information is collected and used The Fair Credit Reporting Act (FCRA) was passed in 1970 with the purpose of regulating the way credit information is collected and used.

Jones applies for a life insurance policy. The insurer will need to view Jones' credit report to determine his credit-worthiness, and if he is a good risk to insure. When must the insurance company inform Jones of his rights under the Fair Credit Reporting Act?

When Jones completes the application The Fair Credit Reporting Act requires that applicants receive a notice upon policy application that a credit report may be performed.

The information on a person's credit report is cleared after how many years?

7 Most information on a person's credit report is cleared after seven years.

An agent is guilty of committing fraud. What must the person obtain in order to transact insurance?

Waiver of consent from the state insurance department An agent guilty of committing fraud will not be permitted to transact insurance. In order to transact insurance again, the agent must obtain a waiver of written consent from their state insurance department.

Consumers notifying agencies by phone can request a _____-year hold on information; however, if a request is made in writing, the hold on information is permanent unless withdrawn by the consumer.

Two Consumers notifying agencies by phone can request a two-year hold on information; however, if a request is made in writing, the hold on information is permanent unless withdrawn by the consumer.

What is the maximum civil fine for an individual or entity that violates the Fraud and False Statements Act?

$50,000 per violation The attorney general can bring a civil action against a person for engaging in fraud or false statements. A person convicted of violation is subject to punishment by a civil fine of up to $50,000 per act or in an amount received or provided in the course of the violation, whichever is greater, or imprisonment for a maximum of 10 years, or both penalties, except that the term of imprisonment will be a maximum of 15 years if the statement or report, or overvaluing of land, property or security jeopardized the safety and soundness of an insurer and was a significant cause of such insurer being placed in conservation, rehabilitation, or liquidation in the appropriate U.S. district court.

Which of the following is generally not insured by state insurance guaranty associations?

Policies from fraternal benefit societies Most state insurance guaranty associations do not insure policies issued by fraternal benefit societies and non-profit insurers.

A person who is guilty of a fraudulent act may be subject to the following penalties:

Civil fine up to $50,000 and imprisonment up to 10 years Each act of fraud is punishable by a civil fine up to $50,000 and imprisonment up to 10 years.

What must a person obtain in order to reenter the insurance industry as an agent, after having been convicted of a criminal felony that involves a breach of trust, dishonest, or has violated the Fraud and False Statements Act?

Waiver Anyone who is convicted of a criminal felony that involves a breach of trust, dishonesty, or a violation of the Fraud and False Statements Act is prohibited from engaging in the business of insurance without first obtaining a waiver of written consent from the appropriate state insurance department Commissioner in the jurisdiction that the person intends to engage in the business of insurance. Any person who fails to obtain such written consent is subject to federal criminal and civil penalties, and administrative actions.

When must the two disclosures pertaining to the Gramm-Leach-Bliley Act be made?

When the customer relationship is established; and prior to disclosure of protected information Two disclosures must be made to customers. The first disclosure must be made when the customer relationship is established. This occurs when a consumer becomes a customer, such as when an insurance policy is purchased. The second disclosure must be made before disclosure of protected information. At this time, the company must provide the customer with an opportunity to opt out of this disclosure and instructions for how to opt out.

What is the penalty for failing to comply with disciplinary actions for violation of the Fair Credit Reporting Act?

Criminal penalty of $50,000 Persons who fail to comply may be subject to pay a criminal penalty of up to $50,000.

Agents must inform applicants that a credit report may be performed:

Upon application Agents must inform applicants that a credit report may be performed upon policy application.