Does the McCarran-Ferguson Act Apply to the FCRA?

08 June 2023 Legal News: Insurance Publication
Author(s): J.J. Silverstein

A common question that arises in the insurance-regulatory context, including in the context of insurance scoring and modelling, is whether, and to what extent, the McCarran-Ferguson Act applies to the FCRA.  The information below provides a brief overview of the applicable law. Of course, this Article does not contain an exhaustive discussion of the subject, and compliance personnel should consult with regulatory counsel on the specific circumstances and applicable jurisdictions.

Among other things, the Fair Credit Reporting Act (15 U.S.C. §§ 1681-1681x; the “FCRA”) includes requirements relating to consumer notification in the event of an adverse action. Adverse action is defined, in relevant part, to mean “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." If any person takes an adverse action with respect to any consumer that is based in whole or in part on any information contained in a “consumer report” the person must, among other things, provide an adverse action notice to the consumer.

The McCarran-Ferguson Act (15 U.S.C. §§ 1011-1015; the “McCarran-Ferguson Act”), generally exempts the business of insurance from federal regulation.  Enacted in 1945, in response to Supreme Court rulings extending federal regulation to the transaction of insurance under the Commerce Clause, the McCarran-Ferguson Act states, “The business of insurance, and every person engaged therein, shall be subject to the laws of the several States which relate to the regulation or taxation of such business,” and “No Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance, or which imposes a fee or tax upon such business, unless such Act specifically relates to the business of insurance.” 15 U.S.C. § 1012. The McCarran-Ferguson Act also includes certain exceptions.  15 U.S.C. Section 1012(b) states that “the Sherman Act . . . Clayton Act, and . . . Federal Trade Commission Act . . .shall be applicable to the business of insurance to the extent that such business is not regulated by State law.”

In assessing the extent to which the FCRA fits into the exemption and pre-emption framework developed around the McCarran-Ferguson Act,  the Alaska Supreme Court explained, “Under the McCarran-Ferguson Act, a federal statute will not pre-empt a state statute enacted ‘for the purpose of regulating the business of insurance’ – unless the federal statute ‘specifically relates to the business of insurance’ . . . [the question is] whether the federal statute specifically relates to the business of insurance. And the FCRA does just that because it specifically refers to the insurance industry. For example, the FCRA states that a person may use a consumer report ‘in connection with the underwriting of insurance involving the consumer.’ Because the FCRA relates to the business of insurance, the McCarran–Ferguson Act does not apply.” State, Dep't of Commerce, Cmty. & Econ. Dev., Div. of Ins. v. Progressive Cas. Ins. Co., 165 P.3d 624, 631–33 (Alaska 2007).  In other words, the McCarran-Ferguson Act does not apply to the FCRA such that the FCRA does not apply to the business of insurance; rather, the FCRA applies to the business of insurance and insurers that act within the scope of the FCRA.

Further, in the context of an insurer’s use of consumer reports and credit-related information, both the FCRA and related state insurance laws may apply, and, to the extent they differ, neither the FCRA nor such state laws are held to preempt the other, unless they are inconsistent.  Id. at 632 (“A state law is inconsistent with a federal law ‘if the state law conflicts with the federal law to the extent that (a) it is impossible to comply simultaneously with both or (b) the state regulation obstructs the execution of the purpose of the federal regulation.’”) The key finding in that scenario is whether the state law “stand[s] as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress expressed in the FCRA . . .” Id. Because many state insurance laws related to the use of consumer reports, such as insurance scoring laws, do not conflict with the FCRA such that the state law makes it impossible to comply with both the FCRA and the state law, and because many such state laws do not obstruct the execution of the FCRA, such state laws may coexist as a complement to the FCRA.

As always, particular circumstances may dictate additional points of analysis, and compliance personnel should consult with their regulatory counsel regarding all potentially applicable laws and jurisdictions.

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