Reminder: Fair Credit Reporting Act Compliance and Reporting Changes Effective January 1, 2013

by Constangy, Brooks, Smith & Prophete, LLP

The federal Fair Credit Reporting Act was enacted in 1971 to regulate the consumer credit reporting industry. Employers that use and request consumer background checks from consumer reporting agencies are automatically subject to FCRA regulations. Before an employer may seek to procure a consumer credit report, criminal background, or background check from a Credit Reporting Agency, applicants or employees subject to screening must be provided certain information, including information about the scope of the check being performed. Background information may not be obtained without the employer's obtaining written consent from the employee or applicant.

Recently, with the enactment of laws like the Dodd-Frank Wall Street Reform and Consumer Financial Protection Act, oversight of the FCRA regulations shifted to the Consumer Financial Protection Bureau. The CFPB has issued new regulations modifying the forms employers must use to notify employees and applicants of their rights. Employers must begin using the new forms on or before January 1, 2013, which can be found here. (Scroll down to Appendices K, M, and N.)

In order to ensure that employers remain compliant, here is a reminder of the requirements:

If a consumer report will be ordered for employment purposes, you must provide pre-notification. You must notify the consumer that a report may be made and will include information regarding character, general reputation, physical characteristics, and mode of living. For consumer reports (background reports) the notice must

  • Be in writing, mailed, or otherwise delivered to the consumer (for employment purposes this must be a stand-alone document);
  • Be issued before any request for consumer information is made; and
  • Request and provide written authorization for any consumer report.

Notice for investigative reports (inquiries into suspected employment-related misconduct) have separate, additional requirements and must

  • Be in writing, mailed, or otherwise delivered to the consumer (this form may be part of the employment application);
  • Be issued no later than three days after the request was made;
  • Include a statement that upon written request additional information will be disclosed regarding the nature and scope of the inquiry (to be provided no later than five days or the consumer's request); and
  • Provide the consumer with the new FRCA Summary of Rights (available here at Appendix K).

Certifications to the Credit Reporting Agency
When requesting a consumer report from a CRA the employer must certify that it

  • Has a "permissible purpose " for requesting the report from the CRA;
  • Has provided the employee or applicant with the required disclosures;
  • Has obtained the requisite written authorization from the employee or applicant;
  • Will not use the information contained in any report in violation of any federal or state equal opportunity law or regulation; and
  • Will, if any "adverse action" is to be taken based on the consumer report, provide the employee or applicant with a copy of the report and the FRCA Summary of Rights.

Post-Report Notification
If an employer seeks to take action based in whole or in part on information contained in the report, the employer must notify the consumer before taking any action. This "pre-adverse action" notice should contain

  • A copy of the report;
  • The reporting agency's name, address, and telephone number; and
  • A copy of the FRCA Summary of Rights.

If, after waiting a recommended five days (this may vary by state), the employer wishes to take adverse action, it must then provide the consumer or employee with an "adverse action" notice that contains

  • Written, oral, or electronic notification of the adverse action to the consumer;
  • A written or electronic copy of the report that includes the actual credit score, the range of possible scores, the key factors that affected the score, the date the score was created, and the reporting entity;
  • A description that contains the consumer's rights to obtain a free report within 60 days to dispute any inaccuracies with the consumer reporting agency;
  • The reporting agency's name, address, and telephone number;
  • A statement claiming that the reporting agency did not make the adverse decision and that it cannot provide the reason for the decision; and
  • Any additional requirements under applicable state law.

With the new year approaching, it is important for employers to reexamine their FCRA compliance policies and procedures. Employers must also substitute the new FCRA Summary of Rights on or before January 1, 2013.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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