Fair Credit Reporting Act

Purpose of the FCRA

The FCRA regulates information contained in consumer reports in order to protect the consumer’s privacy, promote fairness, and to guarantee the data reported is as accurate as possible. “Furnishers”, “resellers” and “users” of consumer reports all have an obligation to follow the procedures set forth by the Federal Trade Commission in the FCRA.

Permissible purposes of consumer reports

A Consumer Reporting Agency may furnish a consumer report for employment purposes and any other permissible purposes defined under section 604 of the FCRA.

Definition of “employment purposes”

The term employment purposes is defined as “any consumer report used for evaluating a consumer for employment, promotion, reassignment or retention as an employee.”

Certification of Use of Consumer Reports

Employers requesting consumer reports must certify to the CRA that they will comply with the regulations set forth in the FCRA and will not misuse any information contained in a consumer report.

What Types of Reports are regulated by the Fair Credit Reporting Act?

There are two types of reports covered by the FCRA:
1) Consumer Reports
2) Investigative Consumer Reports

What is a “Consumer Report”?

Consumer report means any written, oral or other communication of any information by a CRA bearing on a consumer’s credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living which is used or expected to be used or collected for the purpose of serving as a factor in establishing the consumer eligibility for:
A) credit or insurance to be used primarily for personal, family, or household purposes; B) employment purposes; or
C) any other purposes permitted under FCRA section 604.

What is an “Investigative Consumer Reports"?

The term “Investigative Consumer Report” is a special type of consumer report or portion thereof provided by a CRA in which information on a consumer’s general reputation, character, personal characteristics, or mode of living is gathered through interviews of past acquaintances who may have knowledge about information bearing on the applicant or employee’s credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living which is used or expected to be used of collected for employment purposes. Employment references that only include factual information such as employment dates, positions held, and salary information does not constitute an investigative consumer report. However, when inquiring about rehire eligibility, strengths and weaknesses, etc. then an investigative consumer report is constituted and special rules apply.

Notice and authorization of obtaining a consumer report

Prior to obtaining a consumer report, the employer must make a clear and conspicuous written disclosure to the applicant or employee that a consumer report may be obtained. This disclosure must consist of a separate document and should not be incorporated into an employment application. The employer must then obtain the written permission by the applicant or employee to request a consumer report. Despite the “separate disclosure” mentioned above, the applicant/employee disclosure and written authorization may be combined into a single document.

Adverse Action Procedures

For employment purposes, adverse action is defined as a denial of employment or any other decision for employment purposes that adversely affects any current or prospective employee. If adverse action is to be taken due to the content of the consumer report, there are additional requirements that must be met.

Pre-Adverse Action Requirement

After receiving a consumer report, if any adverse action is intended due to the content of the report, an employer must provide the applicant with the following documents.
1) A copy of the consumer report;
2) a copy of “A Summary of Your Rights Under the Fair Credit Reporting Act”; and,
3) a letter stating that an employment decision is pending based on the content of the consumer report.

This allows the applicant an opportunity to dispute any information contained in the consumer report. If any information in the report is inaccurate or incomplete, the applicant may contact the consumer reporting agency to dispute the information contained in the report.

Adverse Action Requirement

After a reasonable amount of time has elapsed and the decision not to hire has been made, the employer must follow up by sending the applicant a Notice of Adverse Action informing that the employer has made a final decision. A copy of “A Summary of Your Rights under the Fair Credit Reporting Act” should again be included with the Adverse Action Notice.

Civil Liability

Any person who willfully fails to comply with any requirement of the FCRA is liable to the consumer for any damages sustained by the consumer as a result of the failure of not less than $100 and not more than $1,000.

In the case of obtaining a consumer report under false pretense or knowingly without permissible purpose, the individual may be subject to actual damages sustained by the consumer or $1,000.

Any person who obtains a consumer report from a CRA under false pretense or without a permissible purpose shall be liable to the CRA for actual damages sustained by the CRA or $1,000, which ever is greater.

The above information is provided as an introduction to complying with the Fair Credit Reporting Act (“FCRA”) enforced by the Federal Trade Commission. This summary is not intended as legal advice. You should consult with your legal counsel regarding your obligations as users of consumer/investigative reports.

Links to all FTC documents mentioned in this summary may be found in our Resource Center.

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