- Property & Casualty
- No comments
The Fair Credit Reporting Act (FCRA) is a federal law that restricts how consumer information may be gathered, shared and used. While many of its requirements apply only to businesses that compile and provide consumer information (such as credit or criminal background data) to third parties, the FCRA also regulates employers that obtain this type of information to screen applicants or employees for employment.
The law’s requirements for employers are designed to help individuals ensure that the information consumer reporting agencies have about them is accurate and is not used to unfairly deprive them of employment opportunities.
This Compliance Overview outlines the steps an employer must take to comply with FCRA.
The FCRA imposes requirements on employers that obtain consumer reports from consumer reporting agencies (CRAs) for employment purposes. Under the law, a CRA is any entity that regularly assembles or evaluates consumer credit or other information for the purpose of selling consumer reports to third parties. When used for employment purposes, a consumer report includes any information obtained from a CRA that an employer uses or expects to use in evaluating an individual for employment, promotion, reassignment or retention and that bears on the individual’s:
- Credit worthiness;
- Credit standing;
- Credit capacity;
- General reputation;
- Personal characteristics; or
- Mode of living.
Obtaining Consumer Reports for Employment Purposes
An employer that wishes to obtain an individual’s consumer report from a CRA must first:
- Provide the individual with written notice that the report may be used for decisions about his or her employment; and
- Obtain the individual’s written permission to get the report (this may be part of the written notice).
In addition, the employer must certify to the CRA that it:
- Has given the required written notice to the individual;
- Has obtained the individual’s written permission to get the consumer report;
- Will comply with all FCRA requirements; and
- Will not discriminate against the individual or otherwise misuse the information in violation of federal or state equal opportunity laws or regulations.
An employer’s written notice to an individual regarding its use of his or her consumer report for employment purposes must meet certain requirements under the FCRA. Specifically, the notice must be clear and conspicuous, and in a document that consists solely of the notice.
In general, this means that the notice must stand alone from any other documents and may not include any extra information that could confuse or distract from the notice. Although the FCRA does allow the document containing the notice to include an individual’s written permission for the employer to obtain his or her consumer report, courts have ruled, for example, that the written notice may not:
- Include other notices or incorporate other documents by reference;
- Allow the individual to make other acknowledgements (such as that he or she understands the notice is not an offer of employment) or agreements (such as to release the employer from liability); or
- Be part of an employment application or other document.
Employers that use reports based on personal interviews concerning an individual’s character, general reputation, personal characteristics and lifestyle have additional obligations under the FCRA. These include notifying the individual in writing that the employer may request or has requested an investigative consumer report and that the individual has a right to request additional information, including a summary of the report.
Taking Adverse Employment Actions Based on Consumer Reports
The FCRA requires employers to provide notices both before and after taking any adverse actions against an individual if the actions are based—in any part—on information in the individual’s consumer report. The law does not specify the amount of time an employer must wait between providing the pre- and post-adverse action notices, which are described in more detail below. In general, however, employers should provide a reasonable opportunity for an individual to explain or dispute the accuracy of his or her consumer report before taking any adverse action against him or her.
Under the FCRA, adverse actions include firing an employee, refusing to hire an applicant and any other employment decision that adversely affects an employee or applicant.
Before Adverse Employment Action
Before making a final decision to take an adverse action against an individual based on information in his or her consumer report, an employer must provide the following to the individual:
- A copy of the consumer report; and
- A Summary of Consumer Rights (employers should ensure that they use the updated model notice required as of Sept. 21, 2018, or an alternative notice that meets the “substantially similar” requirements contained in this interim final rule).
After Adverse Employment Action
Once an employer takes an adverse action against an individual based on information in his or her consumer report, the employer must notify the individual (either orally, in writing or electronically) of:
- The adverse action; and
- The fact that the decision to take the action was based on information in the individual’s consumer report.
In addition, the employer must provide the individual with written or electronic notice indicating:
- The name, address and phone number of the CRA that sold the report;
- That the CRA did not make the employment decision and cannot give specific reasons for it; and
- That the individual has a right to dispute the accuracy or completeness of the report and to get an additional free report from the CRA within 60 days.
Keeping and Disposing of Consumer Reports
The FCRA does not impose any specific recordkeeping requirements on employers. However, employers that receive consumer reports from a CRA should generally keep them for at least five years in case of a lawsuit.
Also, when disposing of any consumer reports they have received from a CRA (along with any information gathered from the reports), employers must take reasonable and appropriate steps to prevent unauthorized access to or use of the information. For example, paper documents should be burned, pulverized or shredded, and electronic files should be erased or destroyed so that they cannot be read or reconstructed. More information about disposing consumer reports is available here.
Enforcement by FCRA
Individuals who believe an employer has violated the FCRA’s notice provisions may file a lawsuit against the employer by the earlier of either:
- Two years after the violation is discovered; or
- Five years after the violation occurred.
In FCRA lawsuits, courts may order a noncompliant employer to pay:
- Actual or statutory damages;
- Attorney’s fees;
- Court costs; and
- Punitive damages (for willful violations).
Provided by The Safegard Group, Inc.