3.4 Federal Regulation: The Fair Credit Reporting Act and 18 U.S.C. 1033-1034
Key Takeaways
- Under the FCRA, a consumer report may be obtained only for a permissible purpose, such as the consumer's written instructions, a credit transaction, or insurance underwriting involving the consumer (15 U.S.C. 1681b).
- An investigative consumer report requires written disclosure to the consumer no later than three days after the report is first requested (15 U.S.C. 1681d(a)).
- On a timely written request, the consumer must receive a disclosure of the nature and scope of the investigation within five days (15 U.S.C. 1681d(b)).
- Under 18 U.S.C. 1033(e), a person convicted of a felony involving dishonesty or breach of trust who willfully engages in the business of insurance faces up to 5 years in prison, unless the regulator has given written consent.
- The Attorney General may seek a civil penalty of up to $50,000 per violation of section 1033, or the compensation received or offered if greater (18 U.S.C. 1034).
Why Federal Law Appears on a State Bail Exam
The outline's section 1.3 lists two federal laws:
- the Fair Credit Reporting Act (FCRA), 15 U.S.C. 1681 to 1681d; and
- 18 U.S.C. 1033 and 1034, fraud and false statements in the business of insurance, including the "1033 waiver."
Both reach bail agents. Agents routinely check indemnitors' credit and assets. Under 18 U.S.C. 1033(f), the "business of insurance" includes the activities of people who act as agents of insurers, and every Ohio bail agent is an appointed agent of a surety insurer.
The Fair Credit Reporting Act
Consumer Reports and Permissible Purpose (15 U.S.C. 1681b)
A consumer reporting agency may furnish a consumer report, such as a credit report, only for a permissible purpose. Those most relevant to a bail office are:
| Permissible purpose | Bail example |
|---|---|
| Written instructions of the consumer (1681b(a)(2)) | The indemnitor signs a written authorization on the bail application |
| Use in a credit transaction involving the consumer (1681b(a)(3)(A)) | Financing part of a premium through a promissory note |
| Use in connection with the underwriting of insurance involving the consumer (1681b(a)(3)(C)) | Evaluating the risk of the bond |
| A legitimate business need in a business transaction the consumer initiated (1681b(a)(3)(F)) | The consumer asks the agency to write the bond |
The safest practice is to obtain the indemnitor's signed, written authorization before pulling a report. Pulling a report on a neighbor, an ex-spouse, or a potential "skip" contact who has no transaction with you is not a permissible purpose.
Obsolete Information (15 U.S.C. 1681c)
Consumer reporting agencies may not report certain old adverse information:
| Item | Cannot be reported after |
|---|---|
| Bankruptcy cases | 10 years |
| Civil suits, civil judgments, and records of arrest | 7 years |
| Paid tax liens | 7 years from payment |
| Accounts placed for collection or charged off | 7 years |
| Any other adverse item | 7 years, except records of convictions of crimes, which have no time limit |
These limits do not apply to reports used in connection with a credit transaction of $150,000 or more, life insurance with a face amount of $150,000 or more, or employment at an annual salary of $75,000 or more.
Investigative Consumer Reports (15 U.S.C. 1681d)
An investigative consumer report gathers information about a person's character, general reputation, personal characteristics, and mode of living, typically through interviews with neighbors, friends, or associates. Anyone who procures one must:
- clearly and accurately disclose to the consumer, in a writing mailed or otherwise delivered no later than three days after the report is first requested, that such a report may be made; and
- on the consumer's written request, made within a reasonable time after receiving that disclosure, disclose the nature and scope of the investigation in writing no later than five days after receiving the request.
18 U.S.C. 1033: Insurance Crimes
Section 1033 applies to people engaged in the business of insurance whose activities affect interstate commerce.
| Subsection | Prohibited conduct | Maximum prison term |
|---|---|---|
| (a) | Knowingly, with intent to deceive, making a false material statement or willfully overvaluing property in reports to insurance regulators or examiners | 10 years; 15 if it jeopardized an insurer and significantly caused its conservation, rehabilitation, or liquidation |
| (b) | Willfully embezzling or misappropriating moneys, funds, premiums, credits, or other property of an insurance business | 10 years (15 under the same aggravating condition); 1 year if $5,000 or less |
| (c) | Knowingly making a false entry of material fact in books, reports, or statements to deceive about financial condition or solvency | 10 years (15 if aggravated) |
| (d) | Corruptly obstructing a proceeding before an insurance regulator by threats or force | 10 years |
| (e)(1)(A) | A person convicted of a felony involving dishonesty or a breach of trust, or of a section 1033 offense, who willfully engages in or participates in the business of insurance | 5 years |
| (e)(1)(B) | Someone in the insurance business who willfully permits that participation | 5 years |
For a bail agent, subsection (b) captures skimming premiums owed to the surety or diverting build-up funds.
The "1033 Waiver" (18 U.S.C. 1033(e)(2))
A person described in (e)(1)(A) may engage in the business of insurance if they have the written consent of an insurance regulatory official authorized to regulate the insurer, and the consent specifically refers to subsection 1033(e). This is commonly called a 1033 waiver.
Practical consequences:
- An agency owner who knowingly hires a person with a disqualifying felony, even for office work that participates in the business, risks personal prosecution under (e)(1)(B) unless that person has written consent.
- State licensing under ORC 9.79 and 3905.14 and federal consent under 1033 are separate hurdles. A state license decision does not by itself answer the federal question.
18 U.S.C. 1034: Civil Enforcement
- The U.S. Attorney General may bring a civil action against anyone who engages in conduct constituting a section 1033 offense. Upon proof by a preponderance of the evidence, the person is subject to a civil penalty of not more than $50,000 for each violation, or the amount of compensation received or offered for the prohibited conduct, whichever is greater.
- The Attorney General may also seek a court order enjoining the conduct.
A bail agent wants to run a credit report on a woman who has offered to co-sign a bond as indemnitor. Which approach best satisfies the FCRA's permissible-purpose requirement?
An agency orders an investigative consumer report, based on interviews with neighbors, about a prospective indemnitor. When must the indemnitor receive written disclosure that the report may be made?
A job applicant for an agency position that participates in writing bonds has a prior felony conviction for embezzlement. Under 18 U.S.C. 1033(e), what must exist before he may lawfully participate in the business of insurance?
Under 15 U.S.C. 1681c, which type of adverse information may a consumer reporting agency continue to report even when it is more than seven years old?