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Fair Credit Reporting Act


Fair Credit Reporting Act Amendments Tighten Reins on Consumer Reports in Employment

Amendments to the Fair Credit Reporting Act will directly affect a company's ability to obtain and use background information on applicants and current employees from consumer reporting agencies. These amendments, effective September 30, 1997, specifically address and regulate the circumstances under which employers can use such reporting agencies to obtain background information and to rely on that information in making hiring, promotion, transfer, and other employment decisions.

What Employers Must Do
1. Employer Must Certify To the Consumer Reporting Agency. Prior to obtaining a consumer report on an applicant or employee, the employer must certify to the consumer reporting agency that it has provided to the applicant or employee a "clear and conspicuous" written disclosure that a report may be obtained for employment purposes. Additionally, the applicant or employee must give the employer written authorization to procure the report. Previously, the disclosure could be included as part of the employment application. That is no longer the case, and it must now be a "stand alone" document.

2. Employer Must Also Certify that it Will Provide a Copy of the Report.
The employer must also certify to the reporting agency that before the employer takes any adverse action based in whole or part on the report, it will provide the applicant or employee with a copy of the report. The employer must also provide a description of FCRA rights. Starting January 1, 2013, employers are required to use updated forms as part of their background check process. The same date will also be the shift in responsibility for interpreting the Fair Credit Reporting Act (FCRA). The responsibility is transferred from the Federal Trade Commission (FTC) to the newly created Consumer Financial Protection Bureau (CFPB). The certification must include a statement that the information being obtained will not be used in violation of any federal or state equal employment opportunity law or regulation.

3. Before Taking Adverse Action Against Employee. After receiving the report but before any adverse action is taken, the employer must provide the applicant or employee with the following: a) a copy of the report; and, b) a description in writing of his or her rights under the FCRA and the regulations of the CFPB. The main change in the forms as of January 1, 2013, is they reflect the change in contact information to the CFPB. Information about the FCRA can also be found at the website http://www.consumerfinance.gov/. One of the new forms available for the employer is entitled, "A Summary of Your Rights Under the Fair Credit Reporting Act." This Summary must be provided when employers (or their third party background checkers) issue a pre-adverse decision notice to an employee or applicant based on their credit report.

4. After Taking Adverse Action Against Employee.
After taking adverse action based on the report, the employer must provide the applicant or employee with the following: 1) an oral, written or electronic notice of the adverse action; 2) the name, address and telephone number, either orally, in writing or electronically, of the consumer reporting agency that furnished the report; 3) a statement that the consumer reporting agency did not make the decision to take adverse action and is unable to provide the applicant or employee with the specific reasons why the adverse action was taken; and, 4) an oral, written or electronic notice of the applicant or employee's right to obtain a free copy of the complete consumer report from the reporting agency, if requested within sixty days, as well as information regarding the consumer's right to dispute the information with the reporting agency. In this notice, the employer must also disclose that within sixty days of receiving the notice, the applicant or employee can make a written request to the employer to disclose information provided in the report that led to the adverse action.

Practical Implications of Amendments
The employer cannot take any adverse action until the applicant or employee has an opportunity to review the report and address any discrepancies. The statute does not state this, but this is the regulating body's interpretation of the law since the law requires the employer to give the applicant or employee a copy of the report before the adverse action is taken.

The provisions of the statute regulating the use of the report for employment purposes were clearly written to protect the consumer reporting agency, not the employer using the report, from lawsuits. Several aspects of the law invite this conclusion: 1) the employer must notify the applicant or employee that adverse action was taken based on the report; 2) the consumer reporting agency did not make the decision and does not know why it was made; and, 3) the statute does not require the employer to disclose the nature of the information relied on to reach the adverse decision unless requested by the consumer. To some extent, the Amendments may even invite litigation against the employer using the report unless the applicant or employee knows "up front" what the problem was.

To minimize the increased risk of litigation over the use of consumer reports, the following steps should be considered:

1) In the notice to the applicant before adverse action is taken, reveal the nature of the information received from the consumer reporting agency;

2) Include with this notice a copy of the report and notice of rights as required by the statute;

3) Give the applicant a short but reasonable period of time to provide information that would explain the discrepancy, omission, or misrepresentation;

4) If the applicant or employee is unable to explain, take appropriate action; and,

5) If that action is adverse to the applicant or employee's interest, provide the required notice as described above.
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