The federal Fair Credit Reporting Act (FCRA) governs the circumstances under which an employer may obtain a "consumer report" concerning prospective and current employees. For purposes of the FCRA, a "consumer report" includes written, oral or other communication of any information from a "consumer reporting agency" regarding an individual's credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics or mode of living which is used or expected to be used for the purpose of evaluating the individual for employment, promotion, reassignment or retention as an employee. (The FCRA is not triggered if an employer uses its own employees – rather than a consumer reporting agency – to collect the information). The Federal Trade Commission (FTC), which has been charged with enforcing the FCRA since its enactment in 1971, has broadly interpreted these provisions to include any report from a consumer reporting agency which contains information bearing on any one of the seven characteristics listed above. Reports covered by the FCRA include, but are not limited to, those containing information such as:
• criminal history records
• school attendance records
• military service records
• credit reports
• records of former addresses
• other public information
Before taking any adverse action for employment purposes based on information in a consumer report, an employer must provide the individual to whom the report relates a copy of the report along with a written summary of the individual's rights under the FCRA. The summary of rights must also be provided to the individual whenever an employer wants to obtain an "investigative consumer report," which is a consumer report, or portion thereof, that investigates an employee's or applicant's character, general reputation, personal characteristics, or mode of living through interviews.
As a result of the Consumer Protection Act of 2010, responsibility for enforcing and interpreting the FCRA has passed to a new federal agency, the Consumer Financial Protection Bureau (CFPB). Effective January 1, 2013, new regulations issued by the CFPB will require employers to begin using a revised Summary of Rights form issued by the new agency. The form is available at http://www.ecfr.gov/graphics/pdfs/er14no12.041.pdf
The new form replaces references to the FTC, with references to the CFPB, and alerts applicants and employees to contact the new agency. The substantive rules governing the requirement of getting an individual's authorization to obtain a consumer report and informing applicants and employees of their rights has not changed.
Most employers are already aware of the Equal Employment Opportunity Commission's recent focus on the discriminatory impact of the use of credit reports and criminal records to make employment decisions. In addition, in 2011, Maryland passed the Job Applicant Fairness Act, which limits the circumstances in which employers can use credit histories to make employment decisions. Now that the CFPB is open for business, updating the FCRA summary of rights form is likely to be only the first of the agency's efforts to address the FCRA. Indeed, the CFPB has already signaled that it intends to increase its scrutiny of credit reporting agency compliance with the FCRA. It seems likely that the agency will eventually act to increase its scrutiny of employer use of credit reports in the coming years. Accordingly, now would be a good time for employers to review their background check practices.
If you have questions about the FCRA, contact:
Chuck Bacharach 410-576-4169
Bob Kellner 410-576-4239