FCRA - Fair Credit Reporting Act

The Fair Credit Reporting Act prohibits employers from using information found in investigative consumer reports or consumer reports provided by a consumer reporting agency against an employee or applicant without having a legitimate business need or without notifying applicants before requesting their consumer reports and obtaining from them a written acknowledgement of the notification.  The FCRA also requires employers that use consumer reports to give applicants the telephone number of the reporting agency and a statement of their rights under the law to dispute the accuracy or completeness of the reports.

Coverage

Any employer that uses consumer reports to make employment decisions regarding employees or applicants must comply with the FCRA.

Key Definitions

An investigative consumer report is a consumer report based on personal interviews with neighbors, friends, associates, and knowledgeable acquaintances of the individual who is the subject of the report.  Specific factual information on an individual’s credit record obtained directly from a creditor of the individual or from a consumer reporting agency or from the individual is not included in an investigative consumer report.

A consumer report is provided by a consumer reporting agency and contains information on the employee’s or applicant’s credit worthiness, credit standing, credit capability, character, general reputation, personal characteristics, or mode of living.

A legitimate business need used to justify a request for a consumer report must be genuine and job-related.  For example, a credit check on an applicant for a financial position is easier to defend than a credit check for a maintenance job.

Employer Rights

The FCRA allows employers with a legitimate business need to:

• Obtain information from a consumer reporting agency on an employee or applicant.
  
  
• Screen out a bankrupt applicant in situations where the debt history indicates financial irresponsibility and the position requires financial honesty and aptitude.

Employee Rights

Employees have a right to the following under FCRA.

• To be notified before an employer requests a consumer report.
  
  
• To be told the name and address of the consumer reporting agency responsible for preparing the report if the report was used for an adverse employment action.
  
  
• To be given a statement of their rights under the law to dispute the accuracy or completeness of their consumer reports.
  
  
• To be told who has received a consumer report on them within the preceding six months or within the preceding two years if the report was furnished for employment purposes.
  
  
• To have incomplete or incorrect information reinvestigated unless the consumer reporting agency has reasonable grounds to believe that the dispute is frivolous or irrelevant.  If the information is investigated and found to be inaccurate or if the information cannot be verified, they have the right to have such information removed from their file.
  
  
• To request the reporting agency to send their version of the dispute to certain businesses without charge, if requested within 30 days of the adverse action.
  
  
• To have a consumer report withheld from anyone who under the law does not have a legitimate business need for the information.
  
  
• To be notified by a business that it is seeking information about them which would constitute an investigative consumer report.
  
  
• To request from the business that ordered an investigative consumer report more information about the nature and scope of the investigation and to discover the nature and substance (but not the sources) of the information that was collected for an investigative consumer report.

Employer Obligations

When a request for information is made to a consumer reporting agency, an employer must fulfill certain duties.

• Before getting an employee or applicant’s consumer report, an employer must notify the individual in writing — in a document consisting solely of this notice.
  
  
• An employer must also obtain an employee’s written authorization before asking a consumer reporting agency for the report.
  
  
• If an employer relies on a consumer report for an adverse action, it must give the individual a pre-adverse action disclosure that includes a copy of the individual’s report and a statement of the individual’s rights under the FCRA before taking the adverse action.
  
  
• After taking the adverse action, an employer must give the individual notice orally, in writing, or electronically, that the action has been taken in an adverse action notice, which must include:
  
  
  1. the name, address, and phone number of the consumer reporting agency that supplied the consumer report;
     
     
  2. a statement that the agency that supplied the report did not make the decision to take the adverse action and cannot give specific reasons for it; and
     
     
  3. a notice of the individual’s right to dispute the accuracy or completeness of any information the agency furnished, and his/her right to an additional free report from the consumer reporting agency upon request within 60 days.

Exceptions

Under the FCRA, employers are limited in the types of information they may obtain about an applicant or employee through a consumer report.  Generally, employers are prohibited from discovering the following information under the FCRA:

• bankruptcies that are over 10 years old;
  
  
• civil suits or civil judgments that are more than seven years old;
  
  
• records of arrest that are more than seven years old;
  
  
• paid tax liens that are over seven years old;
  
  
• accounts placed for collection or charged to profit and loss that are more than seven years old; and
  
  
• any other adverse information, other than records of convictions of crimes, that are more than seven years old.
  
  Note: The Consumer Reporting Employment Clarification Act of 1998 amends the FCRA so the seven-year reporting limitation no longer applies to conviction records.

No time limitation applies to the following items of information:

• information reported because of an application for a job with an annual salary that equals, or may reasonably be expected to equal, $75,000 or more;
  
  
• information reported in connection with a credit transaction involving (or reasonably expected to involve) a principal amount of $150,000 or more; and
  
  
• information reported because of an application for $150,000 or more of credit for life insurance.

In addition to lifting the seven-year reporting limitation, the Consumer Reporting Employment Clarification Act also amends the FCRA to make an exception to the requirement for providing written notice before taking an adverse action based on a consumer report.  The exception applies to prospective commercial truck drivers whose only interaction with a prospective employer, as of the time the employer procures the report, has been by mail, telephone, computer, or any “other similar means.”  If, in these circumstances, a driver applies for employment by mail, computer, or other similar means, and the employer takes adverse action on the application based on a consumer report, the employer must provide the applicant with oral, written, or electronic notice of the action within three business days of taking the action.

Fair and Accurate Credit Transactions Act of 2003 (FACT Act)

Prior to recent legislation, what is known as the “Vail Opinion Letter” issued by the Federal Trade Commission (FTC) was the guiding force when it came to the FCRA and third-party investigations into allegations of workplace misconduct.  This guidance stated that employers that opted to use an outside investigator had to inform employees that their conduct was being investigated prior to the actual commencement of the investigation.  This requirement compromised employers’ ability to conduct fair and unbiased investigations.

Vail has given way to the FACT Act.  This legislation amends the FCRA’s definition of a “consumer report” to exclude communications made by a third party to an employer in connection with an investigation of suspected misconduct relating to employment or compliance with applicable laws, regulations, or written employment policies. 

Under the FACT Act, employers that hire third-party investigators no longer have to:

• notify targeted employees before conducting an investigation,
  
  
• obtain the employee’s prior consent, or 
  
  
• fully disclose investigative reports before taking any adverse action against the employee.

All notification requirements, however, have not disappeared under the FACT Act.  Employers are required to notify an employee that a third-party investigation was conducted after an adverse action has been taken.

The FACT Act also strengthens the FCRA’s prohibition on the reporting of medical information by consumer reporting agencies to an employer unless the employee or prospective employee provides prior consent.  The FACT Act requires that the medical information contained in a consumer report furnished to an employer be relevant to the employment and that the employee or prospective employee sign a written consent form “that describes in clear and conspicuous language the use for which the information will be furnished.” 

Under the FACT Act, all other FCRA requirements remain unchanged.  The FCRA’s requirements that employers fulfill certain notification duties before and after requesting credit information from a consumer reporting agency remain the same.

In November 2004, the FTC published final rules for the FCRA, as amended by the FACT Act.  The rules became effective January 31, 2005.  The FACT Act rendered obsolete three documents that the FTC issued in 1997 and added a fourth.  The FTC has provided model documents.

New: a summary of the rights of identity theft victims, Remedying The Effects Of Identity Theft.  It must be distributed by consumer reporting agencies to consumers who believe they are victims of fraud or identity theft.  Employers may want to keep copies of this notice on hand to educate employees before an incident occurs.

Updated: 1) the general summary of consumers’ FCRA rights, A Summary Of Your Rights Under The Fair Credit Reporting Act; 2) the Notice To Furnishers Of Information: Obligations Of Furnishers Under The FCRA; and 3) the Notice To Users Of Information: Obligations Of Users Under The FCRA.

Although employers do not distribute these notices, you should know what the documents say about your rights and responsibilities, especially the new user notice.  For example, it has been expanded to make clear that consumers may give blanket authorization to employers to obtain consumer reports during the term of employment.

Effective June 1, 2005, employers are required to take reasonable measures to properly dispose of consumer information derived from consumer reports in order to protect against unauthorized access to, or use of, the information in connection with its disposal.  The FTC regulation, known as the Disposal Rule, was issued pursuant to the requirements of the federal FACT Act.  The rule is designed to reduce the risk of consumer fraud, including identity theft.  

Any employer that obtains consumer reports for any of the permissible purposes listed in the FCRA, including conducting background checks, is required to comply with the Disposal Rule.  The rule defines destroying as “shredding or burning” or “smashing or wiping” paper or computer disks containing the protected information. It indicates that covered employers should consider the sensitivity of the information, the nature and size of the employer’s operations, the costs and benefits of different disposal methods, and relevant technological changes when disposing of protected information.  The rule also notes that reasonable measures likely will require elements such as the establishment of policies and procedures governing disposal and employee training.

 

 

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