By now, you should know that the Equal Employment Opportunity Commission ("EEOC") has issued “Guidance on the Consideration of Arrest and Conviction Records in Employment Decisions”, which is designed to restrict criminal background checks by employers, but you may not know that enforcement responsibility for the Fair Credit Reporting Act ("FCRA") has been transferred from the Federal Trade Commission to the recently created Consumer Financial Protection Bureau ("CFPB").

The FCRA, of course, is the federal law that imposes requirements on employers who use third party Consumer Reporting Agencies ("CRA's") to obtain “consumer reports" (i.e., background check, reference check, credit check) and "investigative consumer reports" (i.e., a consumer report where information regarding character, general reputation, personal characteristics, etc is obtained through personal interviews) on prospective or current employees.

What this means for employers is that they should expect heightened scrutiny on their FCRA compliance. The FCRA requires employers who use CRA's to do their background checks to go through a four-step process, using federally-mandated forms. One of the CFPB's first steps in its role as chief enforcer of the FCRA, was to revise that forms which employers must use, effective January 1, 2013.

The three notices the CFPB revised, which are available in Appendices K, M and N to 12 C.F.R. part 1022, are summarized as follows:

  • A Summary of Your Rights Under the FCRA: CRAs must provide this form to employers and employers must provide this form to prospective employees and current employees when either will be subject to an investigative consumer report or when a pre-adverse action notice is sent.
  • Notice to Users of Consumer Reports: Obligations of Users Under the FCRA: CRAs must provide this form to their employer-clients.
  • Notice to Furnishers of Information: Obligations of Furnishers Under the FCRA: CRAs must provide this notice to certain furnishers of information.

The forms CRAs and employers are to continue to use until January 1, 2013 are available in Appendices F, G and H to 16 C.F.R. part 698.

Below is a summary of the four steps and, more helpful, how the CFPB's changes to the FCRA impact each step and when the new notices are required:

Step 1: Certification to the Consumer Reporting Agency

A CRA may furnish a consumer report for employment purposes only if the employer certifies to the CRA, among other things, that:

  • It notified the prospective employee or current employee clearly and conspicuously and in writing that a consumer report is being requested for employment purposes;
  • It obtained writing authorization from the prospective employee or current employee allowing the employer to obtain a copy of the report;
  • It will use the information for a "permissible purpose" only, this includes employment purposes;
  • It will comply with the conditions for adverse action should adverse action be taken against the applicant; and
  • Information from the consumer report will not be used in violation of any applicable Federal or State equal protection laws or regulations.

Once a CRA is engaged to conduct a consumer report, it must provide their employer clients with a copy of the Notice to Users of Consumer Reports: Obligations of Users Under the FCRA.

Step 2: Notice and Authorization from the Applicant

Next, an employer must inform the prospective employee or current employee that it might use information in his or her consumer report for decisions related to employment. The employer must also obtain written permission from the prospective employee or current employee and this must be in a clear and conspicuous manner.

In addition to the obligations above, if the employer wants an "investigative consumer report," as defined above, it must also inform the applicant that an investigative consumer report may be obtained. This must be done in a written disclosure that is mailed, or otherwise delivered, to the prospective employee or current employee not later than three days after the date on which the report is first requested. The notice must clearly and accurately disclose to the applicant in writing that an investigative consumer report may be made. This disclosure must include a statement informing the prospective employee or current employee of his or her right to request additional disclosures of the nature and scope of the investigation, and must include the A Summary of Your Rights Under the FCRA and that, upon the written request of the applicant made within a reasonable period of time after the disclosures required above the user must make a complete disclosure of the nature and scope of the investigation that was requested. Should an prospective employee or current employee contact the employer in writing, and request information about the nature and scope of the investigative consumer report, the employer must supply this information within five days of the date on which the employer received the prospective employee or current employee's request or the date on which the report was requested, whichever is later.

Step 3: Pre-Adverse Action Protocol

If an employer might use information from a consumer report, in whole or in part, to take an “adverse action” — it must give the prospective employee or current employee (1) a copy of the report; and (2) a copy of A Summary of Your Rights Under the FCRA before taking the adverse action.

If, however, the consumer report does not influence the employer's adverse action in whole or in part, the employer has no duty to forward a copy of the report of a summary of consumer rights to the applicant at the pre-adverse action stage.

The rights as explained in A Summary of Your Rights Under the FCRA include giving the prospective applicant or current employee the opportunity to contact the employer and the CRA to dispute or explain information in the report that the prospective applicant or current employee believes is inaccurate or incomplete to give the prospective applicant or current employee the opportunity to see the report that contains the information that is being used against them. If the report is inaccurate or incomplete, the prospective applicant or current employee then has the opportunity to contact the CRA to dispute or explain what is in the report.

Step 4: Adverse Action Protocol

If, after waiting the requisite amount of time, the employer decides to take an adverse action (i.e., deny the applicant's application for employment or terminate an employee) it must inform the prospective employee or current employee orally (though this is highly discouraged) or in writing, which can be electronically, of the adverse action and of the following, statutorily required information, that includes:

  • The name, address, and phone number of the CRA that supplied the consumer report;
  • A statement that the CRA that supplied the information did not make the decision to take the adverse action and cannot give any specific reasons for it; and
  • A notice of the employee's right to dispute the accuracy or completeness of any information in the applicant's report and to get an additional free report from the company that supplied the credit or other background information if the applicant requests it within 60 days.

Takeaways

Get Ready to Change Your Forms. Before January 1, 2013, when conducting criminal screens of applicants and employees, employers should start using the new FCRA Summary of Rights when they: (1) provide the form with required disclosures for investigative consumer reports; and (2) enclose it when they give the applicant or employee a "pre-adverse action" notice.

Do not forget your state laws. Many states have their own laws governing this issue. Some are in line with the FCRA, however, some are not and have additional requirements for employers seeking to obtain background reports (e.g., California, Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New Jersey, New York, Oklahoma, Oregon, Washington, and Vermont).

Lastly, keep an eye on your state's laws on this issue, including "ban the box" laws that prohibit asking about criminal arrests on applications. New laws on this issue are popping up all the time. Take Vermont, for example, that passed Vermont Act No. 154, effective July 1, 2012, which added a new section to Vermont’s Fair Employment Practices statute prohibiting employers in Vermont from failing or refusing to hire or recruit; discharge; or for otherwise discriminating against an individual with respect to employment, compensation, or a term, condition, or privilege of employment because of the individual’s credit report or credit history or even inquire about an applicant’s credit report or history unless the position of employment involves access to confidential financial information and/or if the position of employment involves access to an employer’s payroll information. Or Indiana, whose House Bill 1033, also effective July 1, 2012, restricts the types of criminal history information employers and CRAs can obtain from Indiana state court clerks and the types of criminal history information that CRAs can report to employers in background reports.