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The FCRA: A Little Planning Could Shield Employers from a Lot of Trouble

Awareness of The Fair Credit Reporting Act’s (“FCRA”) requirements is becoming increasingly important for employers. There has been a massive uptick in FCRA litigation in recent years—particularly class action suits alleging background check violations. This year alone, Wells Fargo, Uber, and Dish Network—to name a few—settled FCRA class action claims for $12 million, $7.5 million, and $3 million, respectively. Below we provide information about the FCRA and its state correlates, and recommend steps employers should take to ensure compliance with its intricacies. 
  
The Law
The FCRA is a federal law governing how consumer reporting agencies (“CRAs”) handle individuals’ personal information. Aimed at protecting consumer privacy, the FCRA requires CRAs to ensure that information reported on consumers is fair, accurate, and private. Moreover, employers who request private information from CRAs must provide notice and obtain consent from the consumers for whom the information is sought. 
  
When Does the FCRA Apply?
Employers must comply with the FCRA’s requirements when using a “consumer report” or “investigative consumer report” for employment purposes. 

  • Consumer reports include any communications of information prepared by a CRA that bears on a consumer’s credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living that is used, expected to be used, or collected for establishing the consumer’s eligibility for employment. Examples of consumer reports include credit reports and background reports. 
  • Investigative consumer reports include information on a consumer's character, general reputation, personal characteristics, or mode of living obtained through personal interviews with neighbors, friends, or associates of the consumer.

Disclosure Requirements
If an employer intends to procure a consumer report for employment purposes, prior to doing so, the employer must provide a clear and conspicuous disclosure in writing to the employee or applicant in a stand-alone document stating that a consumer report may be obtained for employment purposes.
 
If an employer intends to procure an investigative consumer report for employment purposes, in addition to satisfying the requirement for obtaining a consumer report, the employer must also inform the employee or applicant in writing of: (a) the applicant or employee’s right to obtain a copy of the report; (b) the permissible purpose of the report; and (c) the possibility that the disclosure may include information on the consumer’s character, general reputation, personal characteristics, and mode of living.
  
Employee Consent Requirements
Employers must additionally obtain the applicant or employee’s authorization in writing prior to procuring the report. The authorization form must include:

  • A statement of consent;
  • The applicant or employee’s signature;
  • The applicant or employee’s address; and
  • The applicant or employee’s Social Security Number. 

Remedies Under the FCRA
Under the FCRA, an employer who willfully fails to comply with any FCRA requirement with respect to a consumer is liable to that consumer for statutory damages between $100 and $1,000 and/or punitive damages. An employer who negligently fails to comply with any FCRA requirement is liable for actual damages. In the case of a successful action to enforce liability, the employer will also be liable for the costs of the action and reasonable attorney’s fees.
  
Always Consider State Laws
Approximately half the states have FCRA-type provisions, which often impose more stringent requirements on employers than the FCRA.
 
California’s Investigative Consumer Reporting Agencies Act (“ICRAA”) is one such state law. The ICRAA applies only to investigative consumer reports. In accordance with the ICRAA, prior to procuring an investigative consumer report, California employers must make multiple disclosures to the applicant or employee, some of which overlap with disclosures mandated by the FCRA for such reports. The employer must inform the employee or applicant in writing of: (a) the applicant or employee’s right to obtain a copy of the report; (b) the permissible purpose of the report; (c) the possibility that the disclosure may include information on the consumer’s character, general reputation, personal characteristics, and mode of living; (d) the CRA’s contact information; (e) the nature and scope of the investigation; and (f) the CRA’s website address. Employers must also provide a check-box on their disclosure forms giving employees or applicants the right to obtain a free copy of the prepared investigative consumer report. Employers must additionally obtain the applicant or employee’s authorization in writing prior to procuring the report.
  
Prior to Taking Adverse Action Against an Employee or Applicant
If an employer intends to take adverse action against an applicant or employee based on the contents of a consumer report, the employer must:

  • Provide the applicant or employee a copy of the consumer report and FCRA Summary of Rights.
  • Provide a reasonable opportunity to dispute the information in the report. The FTC advises that employers wait at least five business days after the applicant or employee receives the pre-adverse action letter before taking adverse action.
  • Ensure the applicant or employee actually received the pre-adverse action letter prior to taking any adverse action. We recommend sending notice via certified mail or with delivery confirmation.

After providing notice and a reasonable opportunity to contest the results of the consumer report, employers may take adverse action by providing written or verbal notice to the employee or applicant. The notice must inform the applicant or employee of the following:

  • The contact information of the CRA that supplied the report;
  • The CRA that provided the report did not make the decision to take the adverse action and as such cannot give the applicant or employee specific reasons for the action; and
  • The applicant or employee has the right to dispute the report’s accuracy.  

Final Thoughts
Now is a good time for employers to ensure they are complying with the FCRA, ICRAA, and any other state correlates that may apply. To avoid potential liability, we recommend employers take the following steps.

  • Provide proper disclosures when seeking consumer reports or investigative consumer reports;
  • Obtain written consent from employees or applicants prior to obtaining the report;
  • Follow the pre-adverse action steps; and
  • Provide written notice to employees or applicants after taking adverse employment action.

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