Employers are required to use revised forms as part of their background check procedures beginning January 1, 2013, pursuant to regulations recently issued by the newly created Consumer Financial Protection Bureau (CFPB), which, as a result of the Dodd-Frank Act of 2010, has replaced the Federal Trade Commission (FTC) as the chief rulemaker and enforcer for most provisions of the federal Fair Credit Reporting Act (FCRA).
The FCRA imposes a number of obligations on employers who use an outside company (called a “consumer reporting agency”) to conduct a background check and obtain “consumer reports” (broadly defined to include credit, criminal background, motor vehicle records and educational records checks, among others) on employees or applicants for hiring, promotion or other employment-related decisions. First, before conducting a background check and obtaining a report about an employee or applicant, the employer must (1) provide a disclosure stating that it may conduct such a screening and request such a report for employment purposes and (2) obtain advance written authorization to do so from the individual. Second, before taking an adverse employment action (i.e., termination, demotion, failure to hire or promote, etc.) based, in whole or in part, on information contained in the report, the employer must provide the individual with (1) a written notice enclosing a copy of the consumer report and (2) a copy of the Summary of Consumer Rights under FCRA form. This is commonly known as the “pre-adverse action notice.” Last, if after waiting the required time, the employer is prepared to take the adverse action against the employee or applicant, it must then provide an “adverse action” notice to the individual, including contact information for the applicable consumer reporting agency.
The revised forms do not impose any additional substantive requirements on employers. Rather, the primary change to the forms is that employees are now instructed to contact the CFPB or visit its website to obtain more information about their rights under the FCRA instead of contacting the FTC. Perhaps more importantly, the revised forms also serve as an indication that the FCRA is on the government’s radar, and employers should, therefore, expect that the CFPB will actively use its powers to ensure employer compliance with the FCRA.
The forms that the CFPB has revised are:
- A Summary of Your Rights Under the Fair Credit Reporting Act: This is the most noteworthy of the revised FCRA forms. Most third party consumer reporting and/or background check agencies will provide this form to employers. Employers should, in turn, be sure that they are providing this revised form to applicants or employees with any pre-adverse action notice sent to an employee or applicant when employers plan to rely on the information contained in the background report to make an employment-related decision. In addition, the revised Summary of Consumer Rights form must be given as part of required disclosures to an employee or applicant when an employer plans to obtain an “investigative consumer report” relating to that individual, which is conducted via personal interviews by a consumer reporting agency. A copy of the revised Summary of Rights form can be obtained here.
- Notice to Users of Consumer Reports: Obligations of Users Under the FCRA: This is a form that consumer reporting and background check agencies must provide to users of their services, such as employers, summarizing their duties as users of consumer reports under the FCRA. A copy of the revised Notice to Users can be obtained here.
- Notice to Furnishers of Information: Obligations of Furnishers Under the FCRA: The FCRA requires consumer reporting and background check agencies to provide this notice to providers of information in certain situations such as reinvestigations where an individual disputes the information contained in the report. A copy of the revised Notice to Furnishers can be obtained here.
Employers who “negligently” or “willfully” fail to comply with any of the FCRA’s requirements before using consumer reports as the basis of an adverse employment action may be subject to lawsuits brought by both applicants and employees. Negligent failure to comply with the requirements can lead to actual damages and attorneys’ fees, while willful failure to comply can also lead to statutory damages ranging between $100 to $1,000 per violation and punitive damages. For this reason alone, employers must be prepared to use the new forms beginning on January 1, 2013. Doing so will provide employers with the ability to raise a defense against any claims of improper disclosure under the FCRA.