Consumer Reports: New Twist To Employer Obligations Under The Fair Credit Reporting Act (FCRA) 

(Published July 21, 2008)

 

Reprinted from PERSONNEL LEGAL ALERT, a widely read employment law newsletter that keeps HR executives up-to-date on the latest court cases, legal trends, government regulations, and federal legislation that affect the policies you write and procedures you administer. Click here to get a free trial today!

 

Something old, something new. We’re not talking weddings; we’re talking consumer reports.  The old are employers’ obligations (which never hurt repeating) under the Fair Credit Reporting Act (FCRA) when using consumer reports as part of the background checking process.  The new are the obligations employers face should a report indicate an address discrepancy.

Old FCRA Obligations 

The FCRA requires an employer to take these steps when using a consumer reporting agency to perform a background check on an applicant or employee.

 

1. Notify the individual in writing before getting their consumer report; the document must consist solely of this notice.  You must also obtain the individual’s written authorization before requesting the report from a consumer reporting agency.

2. Before taking an adverse action based on a consumer report, you 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.

3. After taking the adverse action, you 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.

Warning: The FCRA does not specify how much time must elapse between when an individual receives a copy of the consumer report and when the employer takes an adverse action based on that information.  The following court held that employers must provide “a sufficient amount of time” for the individual to correct any inaccuracies in the report before taking an adverse action.

The court determined that an employee could go to trial based on the fact that he received a copy of his consumer report and FCRA rights (pre-adverse action disclosure) at the same time he received a letter that he would not be offered a job (adverse action notice).  The letters were dated September 1 and September 6, respectively, but the employee claimed to have received both on September 7.  (Beverly v. Wal-Mart Stores, Inc., D.C. VA, WL 149032, 2008)

Tip: To help ensure that the individual receives the pre-adverse action notice first, has time to get the report corrected, and then actually takes steps to get it fixed, ask the individual to respond to the pre-adverse action notice and indicate to you that he/she is taking steps to have the report corrected, and then wait a reasonable amount of time before sending the adverse action notice. 

 

New FACTA Obligations 

A new twist to your FCRA obligations occurs if you receive a consumer report from a consumer reporting agency with a code indicating an address discrepancy.  Starting November 1, 2008, you must take specific actions as mandated by Section 315 of the Fair and Accurate Credit Transaction Act (FACTA), which amended the FCRA.  (Heads up: There is not a universal code to indicate an address discrepancy.  Each of the three main credit bureaus, for instance, uses a different code.)

 

The first thing employers must do is form a reasonable belief that they know the identity of the consumer for whom they’ve obtained the report.  “In other words, the employer should be able to determine that the person is who they say they are,” said Daniel J. Brown, a member of Brown Rudnick’s Litigation Department (Boston).  “The employer needs to come to this reasonable belief for itself.”

According to final regulations issued in November 2007, a reasonable belief can be established by comparing information provided by the agency with information the employer: 1) maintains in company records, such as applications and change of address notices; 2) obtains by verifying the address with the individual whom the report is about; or 3) obtains from other third-party sources or other reasonable means. 

Comparing information in the report to documents the employer maintains in its own records (check for typos against new hires’ job applications or for changes of address for current employees) is going to be the best solution for most employers, Brown said.  He feels that verifying the information with the individual “may be less reliable than documentation.”

Typically, an address discrepancy is innocuous; perhaps the credit reporting agency did not receive information that the person has moved.  But “address discrepancies are considered to be possible red flags for identity theft, so in the worst case scenario, the person…could be…a possible perpetrator of identity theft.  In such a circumstance, it would be important to verify the information with documentation and not just rely on a conversation with the individual.” 

If a reasonable belief is established, employers can use the report, even if there is an address discrepancy.  They must provide the confirmed address to the consumer reporting agency where: 1) the employer establishes a continuing relationship with the individual (i.e., hires them), and 2) the employer furnishes information in the regular course of business to the agency. 

If a reasonable belief cannot be established, the consumer report should not be used.

 

This article was reprinted from AHI's Personnel Legal Alert newsletter. Click here to get a free trial subscription to Personnel Legal Alert. 

 

Related Topic(s): Hiring - Background Checks, Hiring - FCRA - Fair Credit Reporting Act