Court Sets Standard to Define a Consumer Reporting Agency Under the FCRA

Fair Credit Reporting Act (FCRA)

Written By ESR News Blog Editor Thomas Ahearn

On May 30, 2019, the United States Court of Appeals for the Second Circuit issued a decision in the case of Kidd v. Thomson Reuters Corporation that affirmed the ruling by the U.S. District Court for the Southern District of New York that the defendant Thomson Reuters Corporation was not a Consumer Reporting Agency (CRA) as defined by the federal Fair Credit Reporting Act (FCRA) 15 U.S.C. § 1681 et seq.

Plaintiff Lindsey Kidd was the subject of a background check for employment with the Georgia Department of Public Health using the Defendant Thomson Reuters’ Consolidated Lead Evaluation and Reporting (CLEAR) online research platform which inaccurately showed that Kidd had been convicted of theft. Believing the background check report to be correct, the Department rejected Kidd’s application.

Kidd took legal action in the Southern District of New York, claiming that Thomson Reuters was a CRA subject to the FCRA and violated the FCRA by providing an inaccurate report that adversely affected her chances at employment. However, the district court granted Thomson Reuters’ motion for summary judgment, concluding that Thomson Reuters was not a CRA and thus was not subject to the FCRA.

Kidd appealed the district court’s judgment but the Court of Appeals affirmed it because “Thomson Reuters prohibits its subscribers from utilizing CLEAR for any purpose covered by the FCRA, such as credit inquiries or background checks related to employment, and has established measures to prevent those uses of its reports” and that CLEAR “may not be promoted or used for FCRA‐regulated purposes.”

Among other things, the FCRA regulates circumstances in which a CRA may furnish “consumer reports” to third parties, and the information contained in those reports. Typically, CRAs sell consumer reports to lenders, credit card companies, insurers, and employers for credit, insurance, and employment decisions. If a CRA fails to comply with the FCRA, it may be subject to civil liability to consumers.

The district court determined that an entity is CRA under the FCRA if it “regularly assembles consumer information with a particular purpose or subjective intention – namely, of providing it to third parties for use (actual or expected) in connection with an FCRA‐regulated end, such as employment eligibility.” The court noted that the Oxford Dictionary defined “purpose” as to “[h]ave as one’s intention or objective.”

Applying that definition to Thomson Reuters, the district court determined that the company did not qualify as a CRA because it did not intend to furnish “consumer reports” through the CLEAR platform and took “affirmative steps… at every stage of the customer acquisition, application, contracting, and support processes to ensure that subscribers are not using CLEAR for FCRA‐regulated purposes.”

Enacted 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 CRAs and was intended to protect consumers from the willful and/or negligent inclusion of inaccurate information in their credit reports. The FCRA regulates the collection, dissemination, and use of consumer information, including consumer credit information.

Costly class action lawsuits involving the FCRA are one of the main compliance concerns for employers performing background checks for employment purposes in an increasingly complex legal environment in the United States and this trend was chosen by leading global background check firm Employment Screening Resources® (ESR) as one of the “ESR Top Ten Background Check Trends” for 2019.

Employment Screening Resources® (ESR) offers two complimentary white papers that examine the many causes behind FCRA lawsuits: “Common Ways Prospective or Current Employees Sue Employers Under the FCRA” and “Common Ways Consumer Reporting Agencies are Sued Under the FCRA.” The ESR White Paper Library is available at www.esrcheck.com/Tools-Resources/Whitepaper-Library/.

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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