FCRA Lawsuits Not Only Legal Compliance Concern for Employers Performing Background Checks in 2019

ESR Top Ten Background Check Trends for 2019

Written By ESR News Blog Editor Thomas Ahearn

Class action lawsuits involving the federal Fair Credit Reporting Act (FCRA) will not be the only compliance concern for employers performing background checks in an increasingly complex legal environment in 2019. This trend has been chosen by global background check provider Employment Screening Resources® (ESR) as second on the list of “ESR Top Ten Background Check Trends” for 2019.

As legal compliance in screening continues to increase in complexity, aligning with a screening firm that can support compliance will be important, according to ESR founder and Chief Executive Officer (CEO) Attorney Lester Rosen. Federal FCRA requirements are not the only concern for many employers as they are also impacted state and local prohibitions involving “Ban the Box”salary history, and privacy.

As a result, Rosen explains lawsuits involving background checks for employment purposes will continue to rise and the market will look more closely at a screening firm’s litigation and sanctions history. Rosen – who founded Employment Screening Resources® (ESR) in 1997 – says his firm has never been named in an FCRA lawsuit and its screening practices have never been sanctioned by any regulatory authority.

Part of the reason that not being involved in any FCRA lawsuits or sanctions by regulatory authorities is an important issue is that background screening has become so legally regulated since it involves the ability of consumers to obtain and retain employment. As a result, background screening is focused on legal compliance as a result of litigation, legislation, and government regulation.

Passed by Congress in 1970, the FCRA 15 U.S.C. § 1681 promotes the accuracy, fairness, and privacy of consumer information contained in the files of consumer reporting agencies (CRAs) – the FCRA’s term for background check firms – and it was intended to protect consumers from the willful and/or negligent inclusion of inaccurate information in their consumer reports, the FCRA’s term for background checks.

FCRA lawsuits are commonplace for employers who screen. In 2018, settlements in lawsuits for alleged FCRA violations included $3.3 million against a CRA, $3 million against a tenant screening company, $1.3 million against a health care firm, $1.2 million against a subsidiary bottling plant of PepsiCo, $2.4 million against snack food manufacturer Frito-Lay, and $1.2 million against pet product supplier Petco.

The FCRA is enforced by the Consumer Financial Protection Bureau (CFPB), a U.S. government agency responsible for consumer protection in the financial sector that may soon be called the Bureau of Consumer Financial Protection (BCFP), and the Federal Trade Commission (FTC), a U.S. government agency promoting consumer protection. Both the CFPB and FTC were involved with the FCRA in 2018.

In December of 2018, the CFPB announced a settlement with State Farm Bank for allegedly violating the FCRA by obtaining consumer reports without a permissible purpose. Under the terms of the consent order, State Farm Bank must implement and maintain reasonable written policies, procedures, and processes to address the practices at issue in the consent order and prevent future violations.

In July of 2018, Maneesha Mithal, Associate Director of the FTC’s Division of Privacy and Identity Protection, testified on behalf of the FTC before the Senate Banking, Housing, and Urban Affairs Committee that “vigorous” enforcement of the FCRA remained a top priority and outlined efforts to educate consumers and businesses about the law that governs the use of background checks.

Mithal noted that the FTC has played a key role in the implementation, enforcement, and interpretation of the FCRA, which requires CRAs to ensure they provide information in consumer reports to recipients with a “permissible purpose,” have reasonable procedures to ensure the maximum possible accuracy of the information, and allow consumers to dispute and correct information in their consumer reports.

Mithal testified that the FTC has brought more than 30 actions to enforce the FCRA against CRAs, users of consumer reports, and furnishers of information to CRAs in the last decade. As consumer reporting evolves and new technologies and business practices emerge, the FTC will continue to educate businesses that conduct background checks on their respective rights and obligations under the FCRA.

In October of 2018, the FTC announced a tenant screening company in Texas agreed to pay $3 million – the largest civil penalty the FTC has obtained from a background screening company – to settle charges of violating the FCRA by failing to take reasonable steps to ensure the accuracy of information provided to landlords and property managers that caused renters to be falsely associated with criminal records.

The tenant screening company issued a statement about the settlement that expressed disappointment that the FTC singled out their screening report results “for an issue that has confronted the entire screening industry, namely how to match applicants with common last names to public records when most courts do not make social security or driver’s license numbers available as part of those records.”

Besides the FCRA, employers and their screeners also have to worry about state and local requirements such as “Ban the Box”, which delays questions about the criminal history of job applicants until later in the hiring process, and salary history laws that prohibit employers from seeking salary history information from applicants in an effort to narrow the gender wage gap between women and men.

“Ban the Box” is a nationwide movement that seeks to advance job opportunities for people with prior criminal convictions by eliminating any inquiry on job applications into the criminal history of candidates, specifically the check box that requires candidates to disclose their criminal history. As of December 2018, more than 150 cities and counties as well as 34 states have passed Ban the Box laws.

In 2018, the Massachusetts Attorney General (AG) reached agreements with four national employers – Edible Arrangements, Five Guys Burgers and Fries, L’Occitane, and The Walking Company – and issued warning letters to 17 other Boston area businesses found to be in violation of a “Ban the Box” provision in state law that prohibited employers from asking about criminal records on an initial job application.

The U.S. Equal Employment Opportunity Commission (EEOC) recommended employers utilize Ban the Box and a process called an “Individualized Assessment” before the use of a criminal record is made final where an applicant has one last opportunity to present the case why they should be hired in its 2012 Enforcement Guidance on the Consideration of Arrest and Conviction Records in Employment.

Employers need to be careful that criminal records are used in a way that does not cause discrimination as a result of disparate impact, and that in no case should an employer automatically deny employment on the basis of a criminal record unless it is job related or there is a business necessity. Employers should consider the nature and gravity of the offense, the nature of the job, and the age of the offense.

Salary history restrictions have been passed in states, counties, and cities with the idea is that if new pay is based upon previous pay, then gender pay gaps are perpetuated. The goal is to base compensation on the work performed and not to rely on previous pay that may reflect gender discrimination. Statistics from the U.S. Census Bureau show that women earned 80 percent of what men earned in 2015.

In 2018, the EEOC – the government agency which enforces federal laws prohibiting employment discrimination including pay discrimination – announced that Denton County in Texas had agreed to pay $115,000 to a female doctor after a federal court sided with the EEOC in a lawsuit filed by the EEOC over alleged violations of the Equal Pay Act of 1963 and Title VII of the Civil Rights Act of 1964.

Employers and screening firms also have to comply with a growing number of privacy laws. For example, in June of 2018 California Governor Jerry Brown signed into law a comprehensive internet privacy and data breach protection bill called the California Consumer Privacy Act of 2018 (Assembly Bill 375) in response to the data breaches that affected the personal data of millions of consumers in the state.

The Act – which takes effect on January 1, 2020 – expands the rights of consumers to know what data is being collected about them online and to even delete it, empowers consumers to decline the sale of their information and to report violations which must be addressed by the violator or risk civil action, and provides a private right of action for unauthorized access and theft or disclosure of personal data.

Employment Screening Resources® (ESR) offers employers fully automated and paperless background screening technology – ESR Assured Compliance® – that is continually updated in real-time based on changes in employment laws to make compliance with the FCRA, Ban the Box, salary history, and privacy laws painless. To learn more, visit www.esrcheck.com/Technology-Solutions/Assured-Compliance/.

Employment Screening Resources® (ESR) – which is headquartered in the San Francisco, California area – won the 2018 TekTonic Award from HRO Today Magazine for innovation and disruption in the world of HR and recruiting technology with the ESR Assured Compliance® system that enables employers to mitigate risk and maintain compliance with the ever-changing patchwork of background screening laws.

Employment Screening Resources® (ESR) can also help employers remain in compliance with the complimentary white papers “Common Ways Consumer Reporting Agencies are Sued Under the FCRA” and “Common Ways Prospective or Current Employees Sue Employers Under the FCRA.” The ESR White Paper Library is available at www.esrcheck.com/Tools-Resources/Whitepaper-Library/.

Starting in 2008, Employment Screening Resources® (ESR) has selected background check trends that have impacted the future of the background screening industry. Each trend will be revealed on the ESR News Blog and also listed on the “ESR Top Ten Background Check Trends” web page which is available at www.esrcheck.com/Tools-Resources/ESR-Top-Ten-Background-Check-Trends/.

Employment Screening Resources® (ESR) is accredited by the National Association of Professional Background Screeners (NAPBS), undergoes annual SOC 2® Type 2 audits, was named to 2018 HRO Today Magazine Baker’s Dozen for Top Pre-Employment Screening Service, and won the 2018 HRO Today Tektonic Award for innovative and disruptive background screening technology. To learn more, visit www.esrcheck.com.

ESR Webinar on Top Ten Background Check Trends for 2019

ESR founder and CEO Attorney Lester Rosen – a noted background check expert and author of “The Safe Hiring Manual” – will also host a live complimentary webinar entitled “ESR Top Ten Background Check Trends for 2019” that will take place on Wednesday, January 30, 2019, from 11:00 AM to 12:00 PM Noon Pacific Time. To register, visit https://register.gotowebinar.com/register/5840930517922184451.

NOTE: Employment Screening Resources® (ESR) does not provide or offer legal services or legal advice of any kind or nature. Any information on this website is for educational purposes only.

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