What the Updates to the Fair Credit Reporting Act Mean For Employers

The Fair Credit Reporting Act (FCRA) covers a lot of ground in protecting consumers and their personal information. Some of these protections are also important for employers to know if they do background checks on applicants or employees. Read on for the details.

Some Background on the Fair Credit Reporting Act

The FCRA is a federal law that details how a consumer reporting agency (CRA) can collect, use, and disseminate consumer information. The FCRA gives consumers the right to view the information in their credit file and to dispute inaccurate information. This law is designed to protect the privacy and integrity of each individual consumer’s information.

In the employment context, the FCRA governs the manner in which employers may conduct background checks (e.g., credit or criminal background reports) by procuring consumer reports from CRAs to make employment decisions. It creates specific notice, disclosure, and consent requirements, both related to obtaining reports and taking adverse employment actions because of information in reports.

One of the obligations the FCRA places on employers is to get written permission from the applicant or employee before procuring the report. In addition, before taking any adverse employment action (such as denial of employment, demotion, or denial of promotion) based on information in a consumer report, the employer must provide the applicant or employee with a copy of the consumer report and a copy of the “Summary of Your Rights Under the Fair Credit Reporting Act” form. Failure to provide the correct notices and disclosures can lead to significant exposure for an employer, including class action litigation.

In May 2018, in response to some high-profile data breaches, (remember Equifax?) Congress passed the Economic Growth, Regulatory Relief, and Consumer Protection Act. Among other things, this law amended the FCRA to require credit reporting bureaus, under certain circumstances, to provide consumers fraud alerts, free credit freezes, and freeze releases. The goal behind these provisions is to make it harder for identity thieves to open accounts in a consumer’s name.

What Changed?

Last month, the Consumer Finance Protection Bureau (CFPB) — the federal agency responsible for oversight and drafting the model forms required under the FCRA — issued a new model “Summary of Your Rights Under the Fair Credit Reporting Act” form. The new form replaces the old form, effective September 21, 2018. This revised form includes new language to notify consumers of their rights regarding security freezes, as mandated by the Economic Growth, Regulatory Relief, and Consumer Protection Act.

The updated “Summary of Your Rights Under the Fair Credit Reporting Act” form can be found here.

What Should You Do?

Since these updates are already effective, if your business uses consumer reports to make employment decisions, make sure you’re providing the updated FCRA form to applicants and employees moving forward.

That said, the CFPB’s interim rule allows continued use of the forms last updated in 2012 to help mitigate the impact of the model form updates. Employers who do this, however, must also provide a separate page that contains the newly required information (summary of security freeze rights) at the same time.

Keep in mind that some state and local laws regulate the use of background information for employment purposes. Also, any time you use an applicant or employee’s background information to make an employment decision, you must comply with federal and applicable state and local non-discrimination laws. It’s best to consult with counsel to ensure compliance with applicable federal, state, and local requirements.