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Reynolds v. Hartford Financial Services Group: A Recent Interpretation of the Fair Credit Reporting Act

October 11, 2005

The Fair Credit Reporting Act, 15 U.S.C. § 1681 et seq. ("FCRA"), is a federal consumer protection statute that is designed to promote fairness and accuracy in credit reporting. To that end, FCRA places various obligations on credit reporting agencies and other businesses that assemble, furnish, or use consumer credit information. FCRA also affords rights to consumers who are adversely affected by information included in a consumer credit report.

Earlier this week, the Ninth Circuit Court of Appeals issued an opinion that broadly interprets FCRA in the insurance context. In light of this opinion and the FTC’s corresponding position, insurance companies that base rating, discounting, or other underwriting decisions on information in consumer credit reports may wish to revisit their adverse action notification policies to make sure they comply federal law.

"Adverse Action" In The Insurance Context

In Reynolds v. Hartford Financial Services Group, 2005 U.S. App. Lexis 21389 (9th Cir, Oct. 3, 2005), the Ninth Circuit Court of Appeals was asked to determine whether consumers are entitled to an adverse action notice if they are offered a substandard rate on an initial insurance policy based on unfavorable or insufficient information in a credit report. In the insurance context, "adverse action" is defined to include:

[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.

15 U.S.C. § 1681a(k)(1)(B)(i). When an insurer takes an adverse action against a consumer, FCRA requires the insurer to provide the consumer with an adverse action notice. 15 U.S.C. § 1681m(a)(1). Among other things, such notices must: (a) describe the nature of the action taken; and (b) alert the consumer that they may view a copy of the report that triggered the action free of charge to correct any errors that may be included. Id. at (a)(2)-(3).

In Reynolds, the defendant insurers argued that adverse action notices are not required when applicants are offered substandard rates on an initial insurance policy based on unfavorable or insufficient information in a credit report. The insurers argued that a rate or charge for insurance cannot qualify as "increased" under FCRA unless a lower rate or charge previously had been offered.

The court disagreed. Based on FCRA’s plain language and broad consumer protection purposes, the court ruled that insurers must provide consumers with an adverse action notice whenever they are required to pay a higher rate for any insurance, existing or applied for, because their credit rating "is less than the top potential score." Reynolds, p. 30.

In other words, if the consumer would have received a lower rate for his insurance had the information in his consumer report been more favorable, an adverse action has been taken against him, [and an adverse action notice is required].


The Reynolds court also found that the defendant insurers’ violation of FCRA was "willful", and, as a result, the consumer plaintiff was entitled to actual or statutory damages, punitive damages, and reasonable attorney’s fees. Reynolds, p. 44; 15 U.S.C. § 1681n. As used in FCRA, the court held that "willful" entails a conscious disregard of the law, which means "either knowing that policy [or action] to be in contravention of the rights possessed by consumers . . . or in reckless disregard of whether the policy [or action] contravened those rights." Reynolds, p. 44 (citing Cushman v. Trans Union Corp., 115 F.3d 220, 227 (3rd Cir. 2001)). Insurers will want to consider the court’s explanation of what constitutes "reckless disregard" in light of their interpretation of what FCRA requires:

A company will not have acted in reckless disregard of a consumers’ rights if it has diligently and in good faith attempted to fulfill its statutory obligations and to determine the correct legal meaning of the statute and has thereby come to a tenable, albeit erroneous, interpretation of the statute. In contrast, neither a deliberate failure to determine the extent of its obligations nor reliance on creative lawyering that provides indefensible answers to issues of first impression is sufficient to avoid a conclusion that a company acted with willful disregard of FCRA’s [adverse action notice] requirement. We hold that reliance on such implausible interpretations constitutes reckless disregard for the law and therefor amounts to a willful violation of the law.

Reynolds, p. 50.


Credit scoring has long been a controversial topic in the insurance industry. Although the precedential value of Reynolds is limited to the Ninth Circuit, we note that the Ninth Circuit’s opinion generally accords with the FTC’s position. Therefore, insurers should be prepared for the Ninth Circuit’s holding to gain momentum in other jurisdictions as well.

Godfrey & Kahn provides legal services to many domestic and foreign insurance companies and trade associations. This alert is intended for information purposes only and is not intended as legal advice on specific matters or factual situations.

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