The Federal Trade Commission announced on August 8, 2012, that it had settled an enforcement action filed against an employment background screening company. The action demonstrates that the FTC still intends to vigorously use its Fair Credit Reporting Act enforcement authority over non-banks, even though it now shares that authority with the Consumer Financial Protection Bureau.

The settlement provides for the screening company's payment of a $2.6 million civil penalty. According to the FTC, the action represents "the first time the FTC has charged an employment screening company with violating the FCRA, and is the second largest civil penalty that the FTC has obtained under the Act." (The Department of Justice, which filed the action on the FTC's behalf, issued its own announcement of the settlement.)

The complaint alleged that by providing background reports to current or prospective employers, the screening company was providing “consumer reports” and acting as a “consumer reporting agency” under the FCRA. The reports contained public record information, including criminal histories, from multiple sources. The complaint alleged that the screening company had failed to comply with the FCRA requirement to follow reasonable procedures to assure maximum possible accuracy of the information in the reports. One way it allegedly failed to do so was by not taking reasonable steps to ensure that information in its reports was current and reflected updates, such as the expungement of criminal records. Another way was by not taking reasonable steps to prevent information about the wrong person or multiple entries of the same criminal offense information from being included in a report.

The company was also alleged to have failed to (1) allow consumers to access their own information and dispute inaccuracies as required by the FCRA, such as by not conducting investigations after being notified of a consumer's dispute of reported information or closing dispute investigations without providing written notice to consumers of the results, and (2) notify consumers in writing at the time it reported public record information to employers that such information was being reported.

Under the FCRA, the FTC has the right to seek injunctive relief and, for a knowing FCRA violation that constitutes a pattern or practice (which the screening company's claimed violations were alleged to constitute), monetary penalties of up to $3,500 per violation. In addition to imposing the $2.6 million civil penalty, the settlement enjoins the screening company from engaging in future FCRA violations and subjects the company to certain compliance reporting and recordkeeping requirements for a five-year period.

From an employment perspective, employers should keep in mind that the use of background information about applicants during the hiring process comes with inherent risks. Along with the potential for FCRA violations, the Equal Employment Opportunity Commission has expressed concern that the use of credit histories in hiring decisions may have an adverse impact on some protected classes and therefore could possibly violate Title VII. As this settlement demonstrates, information provided by outside background screening companies should be used with caution when making hiring decisions.