When an account is paid by insurance, it means the consumer’s obligation was satisfied (fully or partially) through an insurance policy, rather than directly by the borrower. This situation is common with auto loans, health-related debts, and credit accounts where insurance policies are designed to cover losses due to damage, theft, disability, or other qualifying events. Accurate reporting ensures that the account reflects the payment source while staying compliant with the FCRA.
Why Insurance Payments Require Special Reporting
If handled incorrectly, insurance payments can:
- Mislead future lenders into thinking the borrower defaulted
- Create confusion about whether the account was truly satisfied
- Cause unnecessary disputes from consumers
The Metro 2® format includes specific codes to prevent these problems.
Steps for Reporting Insurance-Paid Accounts
1. Update the Account Status
Depending on how the insurance payment resolved the obligation:
- “13 – Paid or closed/zero balance” — when the account was fully satisfied by insurance
- “62 – Account paid in full by insurance” — if the insurer, not the consumer, made the final payoff
If the payment only covered a portion of the balance, continue reporting the remaining obligation under the consumer.
2. Set Balance and Payment Amount Correctly
- Balance Amount: Report as $0 if the insurer paid the loan in full.
- Scheduled Monthly Payment: Also $0 once closed.
- If partial payment, reduce the balance accordingly and continue reporting consumer responsibility for the remainder.
3. Apply the Correct Special Comment Code
Use the Special Comment Code:
- “E – Account paid by insurance”
This distinguishes insurance settlements from standard consumer payments.
4. Preserve Payment History
Do not remove or reset the borrower’s payment history. All on-time and delinquent payments before the insurance payoff should remain to give a complete picture of repayment behavior.
FCRA Compliance Requirements
The FCRA requires that all furnished information be:
- Accurate: Clearly indicate that insurance (not the consumer) paid the balance
- Complete: Report zero balance if fully covered, or reduced balance if partial
- Not misleading: Avoid reporting “paid in full by consumer” if the insurer was responsible
Impact on the Consumer’s Credit Report
- No Negative Effect if Reported Correctly
When coded properly, insurance payments do not damage the consumer’s credit profile. - Maintains Credit History
The tradeline remains with full historical data, helping preserve account age. - Transparency for Future Lenders
Lenders reviewing the file can see that repayment came through insurance rather than consumer default.
Conclusion
Accounts paid through insurance must be reported with the correct status, balance adjustments, and special comment codes to remain compliant with Metro 2® and the FCRA. Accurate reporting prevents confusion, protects consumers from unfair credit damage, and ensures lenders have a full understanding of how the obligation was satisfied.