Government Increases Action Against Consumer Reporting Agencies Using Background Checks in Violation of FCRA

The Federal Trade Commission (FTC) recently submitted written testimony to the U.S. Commission on Civil Rights summarizing the Fair Credit Reporting Act (FCRA) requirements that relate to the use of consumer reports in employment in protecting the rights of job applicants and employees under the FCRA, according to a news release available at http://www.ftc.gov/opa/2012/12/fcra.shtm.  The FTC testimony on the FCRA – which promotes the accuracy, fairness, and privacy of information from Consumer Reporting Agencies (CRAs) – is an example of the trend of the government increasing action against CRAs violating the law. This is Trend Number 9 of the 6th Annual ‘ESR Top Ten Background Check Trends for 2013’ available at http://www.esrcheck.com/Top-Ten-Background-Check-Trends-for-2013.php.

The FTC testimony (available at http://www.ftc.gov/os/2012/12/120712testimonyoncivilrights.pdf) describes some of the legal rights and obligations prescribed by the FCRA when consumer reports are used for employment purposes, including the following:

  • CRAs must have reasonable procedures to assure maximum possible accuracy of reports;
  • CRAs must notify employers of their obligations under the FCRA;
  • Employers have to obtain the written consent of applicants and employees before using consumer reports for employment purposes;
  • Employers must provide notice to applicants and employees along with a summary of their rights under the FCRA before taking an adverse action against them based on a consumer report; and
  • Consumers have the right to obtain a copy of their consumer report and dispute erroneous or incomplete information with the CRA.

The testimony highlighted law enforcement and education efforts by the FTC in the area of employment background checks.  In August 2012, the FTC took action against a leading employment background screening company that resulted in a settlement that included $2.6 million in civil penalties. The FTC alleged that the company provided reports containing inaccurate information and failed to comply with FCRA dispute provisions. For more information, visit http://www.ftc.gov/opa/2012/08/hireright.shtm.

In June 2012, the FTC took action against a data broker that compiled and sold detailed information profiles on millions of consumers that resulted in a settlement that included $800,000 in civil penalties. The FTC alleged that the company failed to take reasonable steps to ensure that the reports sold would be used only for purposes allowed by law, ensure the reports were accurate, and inform report users of their FCRA obligations. For more information, visit http://www.ftc.gov/opa/2012/06/spokeo.shtm.

With regard to data brokers, the FTC issued a final report in March 2012 – ‘Protecting Consumer Privacy in an Era of Rapid Change: Recommendations For Businesses and Policymakers’ – that urged businesses to adopt best practices to protect the privacy of American consumers and contained important recommendations regarding data brokers that gave them greater control over the collection and use of their personal data. One recommendation in the FTC report available at http://www.ftc.gov/os/2012/03/120326privacyreport.pdf was that Congress consider enacting data broker legislation.

The FTC – the federal agency that works for consumers to prevent fraudulent, deceptive, and unfair business practices – also published educational materials designed to help employees and employers understand their rights and obligations under the FCRA. These materials include ‘Using Consumer Reports: What Employers Need to Know,’ a business education publication explaining the FCRA available at http://business.ftc.gov/documents/bus08-using-consumer-reports-what-employers-need-know.

The Commission voted 5-0 to approve the testimony, which was submitted for a briefing that took place on December 7, 2012. ‘The Prepared Statement of the Federal Trade Commission Before the United States Commission on Civil Rights: The Fair Credit Reporting Act and the Use of Consumer Reports In Employment’ is available at http://www.ftc.gov/os/2012/12/120712testimonyoncivilrights.pdf.

Since the passage of the FCRA, the FTC has been in charge of interpreting and enforcing the FCRA.  The FTC issued a report in 2011, ‘Forty Years of Experience with the Fair Credit Reporting Act: An FTC Staff Report and Summary of Interpretations – The Federal Trade Commission (FTC),’ that compiled and updated the agency’s guidance on the FCRA. The report is available at: http://ftc.gov/os/2011/07/110720fcrareport.pdf.

However, the role of the FTC is changing.  An issue being decided in Washington D.C. is what role the new Consumer Financial Protection Bureau (CFPB) will have in issuing new rules concerning the FCRA. Also unclear is the relationship between the CFPB and the Federal Trade Commission (FTC), which has historically regulated and supervised background firms. The CFPB was created to protect consumers regarding financial products. The creation was part of the Dodd–Frank Wall Street Reform and Consumer Protection Act (Pub.L. 111-203, H.R. 4173) and was signed into law by President Barack Obama on July 21, 2010.  The CFPB has rule making and enforcement powers over the FCRA.

However, the CFPB does not have supervisory power over background firms.  Congress specifically exempted background firms from being supervised by the CFPB since a background report is not a financial product. However, it is unclear what role the CFPB will play in the future.  Since background firms are still supervised by the FTC under the new law, it remains to be seen if the CFPB attempts to extend their jurisdiction to backgrounds checks, or not, and the relationship between the two agencies.

Obviously, there are a host of practical issues if the CFPB decides the rules and engages in enforcement, and the FTC is in charge of supervision. An example of the potential confusion surrounds forms that a background screening firm provides to both consumers and employers who utilize background screening services as well as furnishers of information.  Historically, those forms were written by the FTC. However, the FCRA has been modified to reflect that under new law, the CFPB will provide the forms.

For more information about the new FCRA mandated forms from the CFPB that background screening firms will have to use starting January 1, 2013, read the ESR News blog ‘Consumer Financial Protection Bureau Announces New Corrected Forms Required by FCRA for Background Checks Starting January 1 2013’ or visit the CFPB website at http://www.consumerfinance.gov/learnmore/.

In November 2012, ESR News reported that the CFPB released a bulletin to nationwide specialty consumer reporting agencies (NSCRAs) to remind them of their obligation under the FCRA to provide a “streamlined process” for consumers to obtain a free annual consumer report. The CFPB also issued warning letters to NSCRAs that may be violating the FCRA by failing to provide this process. The CFPB bulletin to NSCRAs is available at: http://files.consumerfinance.gov/f/201211_cfpb_NSCRA_Bulletin.pdf.

Employment Screening Resources (ESR) – ‘The Background Check Authority’ – is a nationwide background check firm located in the San Francisco, California-area accredited by the National Association of Professional Background Screeners (NAPBS). For more information about ESR services, visit http://www.esrcheck.com/ or call toll free 888.999.4474. The 6th Annual ‘ESR Top Ten Background Check Trends for 2013’ is at http://www.esrcheck.com/Top-Ten-Background-Check-Trends-for-2013.php.

More information about these trends is available in the updated 2nd Edition of “The Safe Hiring Manual” by ESR Founder and CEO Attorney Lester Rosen. For more information, visit http://www.esrcheck.com/SafeHiringManual.php.

Sources:

http://www.ftc.gov/opa/2012/12/fcra.shtm

http://www.ftc.gov/opa/2012/08/hireright.shtm

http://www.ftc.gov/opa/2012/06/spokeo.shtm

http://business.ftc.gov/documents/bus08-using-consumer-reports-what-employers-need-know

http://www.ftc.gov/os/2012/12/120712testimonyoncivilrights.pdf

About Employment Screening Resources (ESR):

Founded by safe hiring expert Attorney Les Rosen in 1997, Employment Screening Resources (ESR) – ‘The Background Check AuthoritySM’– provides accurate and actionable information that empowers employers to make informed hiring decisions for the benefit of their organizations, employees, and the public. CEO Rosen literally wrote the book on background checks with “The Safe Hiring Manual” and ESR is accredited by The National Association of Professional Background Screeners (NAPBS), a distinction held by a small percent of screening firms. Employers choosing ESR know they have selected an agency meeting the highest industry standards. To learn more about ESR, visit http://www.esrcheck.com or call toll free 888.999.4474.

About ESR News:

The Employment Screening Resources (ESR) News blog – ESR News – provides employment screening information for employers, recruiters, and jobseekers on a variety of topics including credit reports, criminal records, data privacy, discrimination, E-Verify, jobs reports, legal updates, negligent hiring, workplace violence, and use of search engines and social network sites for background checks. For more information about ESR News or to send comments or questions, please email ESR News Editor Thomas Ahearn at tahearn@esrcheck.com. To subscribe to the ESR News Blog Feed, visit http://www.esrcheck.com/wordpress/feed/. To subscribe to the complimentary ESRcheck Report monthly newsletter, please visit http://www.esrcheck.com/Newsletter/.

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