The Fair Credit Reporting Act (FCRA) is designed primarily to protect the privacy of consumer report information and to guarantee that the information supplied by consumer reporting agencies is as accurate as possible. The FCRA imposes legal obligations on employers who use consumer reports. Generally, the FCRA requires that individuals are (1) notified that consumer reports may be used for employment purposes and agree to such use, and (2) notified promptly if information in a consumer report may result in a negative employment decision. With these provisions, Congress hopes to address concerns that applicants could be denied jobs or employees could be subjected to adverse action (e.g., denial of promotion) due to inaccurate or incomplete consumer reports.

What is a “Consumer Report” under the FCRA?

A “consumer report” contains information about an individual’s personal and credit characteristics, character, general reputation and lifestyle. To be covered by the FCRA, a report must be prepared by a consumer reporting agency (CRA)—a business that assembles such reports for other businesses. For example, driving records, criminal histories and credit payment records are “consumer reports” if the employer obtains them from a CRA.  

What Notice Obligations are Imposed on Employers?

The FCRA imposes several notice requirements on employers:

Notice and Authorization

Before obtaining a consumer report, an employer must inform an applicant or employee in writing that the employer may use information contained in such a report for employment purposes. The notice must be clear and conspicuous—and in a document consisting solely of this notice (“separate document” notice). For example, this notice cannot be part of a job application. An employer must obtain the individual’s written authorization before getting the consumer report. An employer may include this notice and authorization in the same document, as long as each are set out clearly and the document does not deal with other issues.  

Pre-Adverse Action Notice

If an employer intends to take “adverse action” against the individual due to information contained in their consumer report—such as denying employment to an applicant or discharging an employee—the employer must give the individual a pre-adverse action notice. With this notice, the employer must provide a copy of: (1) the consumer report; and (2) a document called “A Summary of Your Rights under the Fair Credit Reporting Act” (available at http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre35.pdf). The employer must provide this notice before taking the adverse action.  

Adverse Action Notice

If an employer takes an adverse action against an applicant or employee based, in whole or in part, on information in a consumer report, the employer must inform the individual. While an employer may convey this notice orally, it would behoove the employer to provide it in writing or electronically so that a record is created. The notice must include:  

  • The name, address and phone number of the company that supplied the credit report  
  • A statement that the company that supplied the information did not make the decision to take the adverse action and cannot provide any specific reasons for the decision  
  • A notice of the individual’s right to dispute the accuracy or completeness of any information in the report and to get an additional free consumer report from the company that supplied the report if requested by the individual within 60 days.  

Although the FCRA does not specify how much time an employer must give between the pre-adverse action notice and proceeding with the adverse action, a Federal Trade Commission opinion letter considers five business days to be “reasonable.” What length of time may be “reasonable” often depends on the particular situation and an employer may need to seek legal advice on this issue.  

Does an Employer Need Written Permission from an Employee Each Time the Employer May Use a Consumer Report for Employment Purposes?

No, as long as the employee provided written permission in the past for the employer to use a consumer report in making employment decisions and the employee received a “separate document” notice that reports may be obtained during the course of their employment. If an employee has not received notice and given his or her permission, the employer must notify the employee and get written permission before obtaining the employee’s consumer report. When applicable, the employer would still be required to provide the pre-adverse action notice and adverse action notice.  

What are the Legal Consequences for Non-Compliance?

Applicants/employees may sue employers for damages in federal court for violations of the FCRA. If successful, the individuals may recover court costs and reasonable attorney fees. The FCRA also permits recovery of punitive damages if an employer’s violation is considered willful. Separately, the Federal Trade Commission, other federal agencies and state agencies may sue employers for noncompliance and obtain civil penalties.  

Given the FCRA’s imposition of notice obligations on employers before they take certain actions, employers must be mindful of their obligations at the front end to avoid legal problems at the back end.