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Fair Credit Reporting Act

Supreme Court Decision on Willfulness Under FCRA May Have Dramatic Impact on Employers and Screeners

June 05, 2007

A new case from the U. S. Supreme Court relating to the application of the Fair Credit Reporting Act (FCRA) to certain insurance industry practices decided June 4, 2007, may have significant impact on employers when it comes to background checks. The case, Safeco Ins. Co. v. Burr, No. 06-84, 2007 U.S. LEXIS 6963 (June 4, 2007), dealt with the use of credit reports to set insurance rates and the obligation of insurers to send out adverse action notices to consumers whose rates were affected by their credit reports.

However, the case also concerned the definition of "willful" under the FCRA. That was critical since under FCRA section 616 (15 U.S.C. 1681n), punitive damages are only allowed if there was willful non-compliance.

The Court dealt with a split among lower federal courts on what the FCRA meant by willfulness. Some courts had ruled that a willful violation of the FCRA meant that a business had to have actual knowledge that their conduct was in violation of the FCRA.

However, the Supreme Court ruled that a reckless disregard of the FCRA was sufficient. A reckless disregard can be an action entailing an unjustifiably high risk of harm that is either known or so obvious that it should be known. Recklessness is a higher standard than mere negligence, but a lower standard than what other lower federal courts had imposed. The net effect is that it is now easier to sue an employer or screening firm for punitive damages.

The bottom line: Just because a screening firm or employer believes it is acting lawfully, that is NOT a protection from an allegation of willful violation of the FCRA and exposure to punitive damages. A screening firm or employer is now held to a higher standard of compliance. Where the line will be drawn between mere negligence and recklessness in any particular case is always a difficult proposition. The net-effect is that if a lawsuit is filed against screening firms or employers for FCRA violations, a request for punitive damages on a recklessness theory is more likely. There is also an increased possibility of class action lawsuits based upon FCRA violations because of the loosened willfulness definition to include recklessness. This underscores again the critical nature of legal compliance when it comes to background checks.

by Attorney Lester S. Rosen

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