|
Definition of Consumer Reports Overly Broad
Written Disclosure and Consent of Applicants or Employees
Certification to the Reporting Agency Required
"Two-Tier" Notice for Adverse Actions
Additional Requirements for Investigative Consumer Reports
Big Penalties for Noncompliance
Employer Lesson: Check Employment and Promotion Policies
Employers routinely check credit,
employment, and even personal references before
hiring a new
employee or promoting a current employee. However, thanks to amendments to the
Fair Credit Reporting Act ("FCRA"), employers must
comply with extensive, and often confusing, disclosure and reporting
requirements. Previously, employers performing credit checks of
applicants or employees had to notify the individuals only if
employment was denied either in whole or in part because of
information contained in a credit report provided by a consumer
reporting agency. Effective September 30, 1997, employers must
comply with comprehensive notice, consent, and disclosure
obligations both prior to performing a check and after the results
of the check are reported. The following is a discussion of some of
the more cumbersome requirements of the new provisions.
Definition
of Consumer Reports Overly Broad
[Download Free HR Policies]
The FCRA is intended primarily to protect the privacy of credit
report information and to guarantee that the information provided by
credit bureaus is accurate. It does not prohibit employers from
checking an applicant’s or employee’s credit history or making an
employment decision based on this information. However, the law
covers significantly more information than credit reports.
[Creating HR Policies or Employee Handbook?]
The FCRA requirements apply whenever an employer requests a
"consumer report" or "investigative consumer report" from a consumer
reporting agency. A "consumer report" includes any written, oral, or
other communication of any information by a consumer reporting
agency regarding a consumer’s credit worthiness, credit standing,
credit capacity, character, general reputation, personal
characteristics, or mode of living which is used as a factor to
establish the consumer’s eligibility for employment. An
"investigative consumer report" is defined as a consumer report or
portion of a consumer report which relies on interviews with
neighbors, friends, and associates to compile information about the
applicant’s character, general reputation, mode of living, and other
personal characteristics. These definitions were not changed by the
FCRA amendments.
Accordingly, employers that ask a consumer reporting agency to
provide information on an applicant’s or employee’s credit,
employment history, motor vehicle records, criminal background, and
references must be prepared to comply with the FCRA requirements.
Note, however, that employment agencies and search firms generally
are not covered by the FCRA when reporting references in accordance
with employee placement.
Written Disclosure and Consent of Applicants or Employees
Under the revised requirements of the FCRA, an employer that intends to
obtain a consumer report first must make a clear and conspicuous
written disclosure to the applicant or employee that a consumer
report may be obtained for employment purposes. The disclosure
cannot be included in an employment application or other document
that contains additional information; it must be on a separate
self-contained page. The employer also must get the written
authorization of the employee or applicant before obtaining the
report. The Federal Trade Commission ("FTC"), the federal agency
that enforces the FCRA, indicated in a staff opinion letter dated
October 21, 1997, that an employer may combine the notice and
authorization in one form for the applicant or employee.
Certification to the Reporting Agency Required
Employers also must comply with reporting requirements for the
consumer reporting agency. In order to obtain a consumer report from
a consumer reporting agency, the employer must provide certification
to the agency that the employer: (1) is requesting the report for
employment purposes (which includes to evaluate a consumer for
employment, promotion, reassignment, or retention as an employee);
(2) has provided the required disclosure to the consumer and
received the necessary written authorization to request the report;
(3) will provide the consumer with a copy of the report and a
written description of the consumer’s rights before taking any
adverse action based in whole or in part on the report; and (4) will
not use the information from the report in a manner that violates
federal or state equal opportunity laws.
"Two-Tier" Notice
for Adverse Actions
One of the most cumbersome obligations added by the FCRA amendments
requires employers to give notice to applicants and employees not
once, but twice, if the employer takes adverse action based on
information received in the consumer report. According to the
amendments, before taking adverse action an employer must provide a
copy of the report to the applicant or employee and describe in
writing the person’s rights under the FCRA. The FTC has provided a
sample notice titled "A Summary of Your Rights under the Fair Credit
Reporting Act" addressing consumers’ rights that may be used to
comply with these requirements. As a practical matter, the consumer
reporting agency is required to provide this summary to the employer
with the report.
A second, separate notice must be provided after the employer takes
adverse action. The notice can be given orally, in writing, or
electronically, and must include: (1) the name, address, and
telephone number of the consumer reporting agency issuing the
report; (2) a statement that the agency did not make the decision
and is not able to explain why the decision was made; (3) a
statement regarding the consumer’s right to obtain a free disclosure
of the consumer’s file from the agency if the consumer requests the
report within 60 days of notice of the adverse action; and (4) a
statement regarding the consumer’s right to dispute directly with
the consumer reporting agency the accuracy or completeness of any
information provided by the agency. Employers should note that they
do not have to hire or reconsider the qualifications of an
individual who can show the reported information was false.
The FCRA does not specify how much time, if any, must pass between
the notice prior to adverse action and the notice after the action.
However, a FTC staff opinion letter dated June 27, 1997, suggests
that five days is a reasonable period of time. The opinion letter
also acknowledges that "the facts of any particular employment
situation may require a different time," indicating that a shorter
period of time may be appropriate. Because of the ambiguity,
employers can expect that this period of time will be the topic of
future regulations or opinion letters.
Additional Requirements for Investigative Consumer Reports
In order to obtain an investigative consumer report, employers must
comply with the same notice, authorization, and disclosure (both to
the consumer reporting agency and to the applicant or employee if
adverse action is taken) requirements that apply to consumer
reports. In addition to complying with these requirements, the
employer must, within three days of requesting the report: (1)
disclose in writing to the applicant or employee that the
investigative consumer report may be made; (2) inform the applicant
or employee of the right to request disclosure of the nature and
scope of the investigation to be made; and (3) provide a written
summary of the consumer’s rights under the statute. In addition, if
the applicant or employee requests in writing information on the
nature and scope of the investigation, the employer must send this
information to the individual, also in writing, within five days
after the date of the request.
Big Penalties for
Noncompliance
Employers that are "negligent in failing to comply" with the FCRA’s
requirements are liable to a consumer for actual damages, costs of a
suit, and attorney’s fees. In addition, if an employer is determined
to be in "willful noncompliance," it may face punitive damages.
Criminal penalties also may be imposed if an person obtains a credit
report under false pretenses.
Employer Lesson: Check Employment and Promotion Policies
Clearly, the FCRA requirements place new burdens on employers using
consumer reporting agencies to perform credit and other background
checks of new and current employees. Since the requirements are
comprehensive, employers should analyze their employment and
promotion policies and procedures to ensure that they incorporate
the Act’s requirements. For more information, visit the FTC’s web site at http://www.ftc.gov/os/statutes/fcrajump.htm. |
Personnel
Policy Service, Inc.
