As of the first of January this year, employers who use outside agencies to conduct background checks on candidates for employment should be using the new Fair Credit Reporting Act (“FCRA”) disclosure form developed by the Consumer Financial Protection Bureau, which has become the lead regulatory body for compliance with the FCRA. The Bureau issued new regulations that have revised the forms employers need to use advising candidates for employment of their rights with respect to information gathering about their backgrounds.

In the wake of Congress adopting protective measures to prevent consumer exploitation and abuse in recent years, oversight of compliance with the FCRA has shifted from the Federal Trade Commission and over to the Consumer Financial Protection Bureau.

The new notice that must be used by employers is substantively the same as the old notice but reflects the change in the agency with oversight responsibility for compliance with the statute. A copy of the new notice can be found on the CFPB’s website.

The new form requirement gives employers an opportunity to revisit all of the requirements of the Fair Credit Reporting Act and to ensure that they are in compliance. Because attorneys’ fees are available to individuals whose rights are violated by a failure to comply with the Act, and class actions are the mechanism of choice for plaintiffs’ attorneys who practice in this area, violations of the statute can be costly. Devoting a little bit of time to reviewing the requirements can save lots of money in the long run.I

Statutory Requirements. The Fair Credit Reporting Act, codified at 15 U.S.C. § 1681 et seq., was designed to regulate the credit reporting industry. Under the FCRA, a “consumer report” is defined as any written, oral or other communication of any information by a consumer reporting agency bearing on, among other things, credit worthiness, character, general reputation, personal characteristics or mode of living, to be used for employment purposes or other permissible uses. 15 U.S.C. § 1681(d)(1). This broad definition therefore includes such commonly obtained information during the employer’s candidate review process as criminal background checks. An “investigative consumer report” is defined under the statute as a consumer report in which information about a consumer’s “character, general reputation, personal characteristics or mode of living” is obtained through personal interviews with neighbors, friends or associates of the consumer. 15 U.S.C. § 1681(e). This broad definition, therefore, encompasses vetting employment candidates by discussing the candidate’s performance and character with the prior employer or coworkers.

Because the types of reports that employers often seek before hiring a candidate qualify as consumer reports or investigative consumer reports and come from entities that qualify as consumer reporting agencies for purposes of the Act, employers must comply with the FCRA’s mandated notice requirements, which are triggered at various stages of the pre-employment interview and consideration process.

The FCRA generally requires that the employer provide notice to candidates at three different stages of the hiring or review process:

  • Before requesting a consumer credit report, an employer must notify the applicant or employee in writing about their intent to order such a report, in a stand alone document, and obtain written consent to request the report.
  • If the employer is obtaining an “investigative” consumer report, the notice provided before obtaining the report must be issued no later than three days after the request was made, must advise the candidate that upon written request, additional information will be disclosed regarding the nature and scope of the inquiry, and provide the candidate with the new FRCA Summary of Rights.
  • The employer must certify to agency when it makes its request for an investigative report that it is requesting the report for an authorized purpose, that it has provided the mandated disclosures to the candidate, has obtained written authorization, will not use the information to violate any law, and will comply with mandated notices if an adverse action is taken as a result of the report.
  • After the adverse action is taken, the employer must provide a notice to the candidate that includes:
    1. written notice of the adverse action;
    2. a copy of the report;
    3. the reporting agency’s name, address and telephone number;
    4. a statement that the company supplying the report did not make the decision to take unfavorable action, and
    5. notice of the applicant’s right to dispute the accuracy or completeness of any information the consumer reporting agency furnished, and to get a free report from the company if requested within 60 days.

State laws pertaining to consumer credit issues vary and may impose additional requirements, and should be consulted by employers to make certain they are adhering not just to federal but to state mandates.