Fair Credit Reporting Act (FCRA) Lawsuits Will Continue to Serve as Compliance Signposts for Background Checks

Employment Screening Resources® (ESR) Top Ten Background Check Trends for 2021

Written By Employment Screening Resources® (ESR)

Lawsuits filed for alleged violations of the federal Fair Credit Reporting Act (FCRA) that regulates background screening in the United States will continue to serve as legal compliance signposts for employers conducting background checks on job applicants, according to the “ESR Top Ten Background Check Trends” for 2021 compiled by leading global background check firm Employment Screening Resources® (ESR).

The FCRA was enacted by Congress in 1970 to promote the accuracy, fairness, and privacy of consumer information contained in the files of consumer reporting agencies (CRAs), protect consumers from the willful and/or negligent inclusion of inaccurate information in their consumer reports, and regulate the collection, dissemination, and use of consumer information, including consumer credit information.

Lawsuits for alleged violations of various requirements of the FCRA have become all too common and can result in penalties in the thousands and even millions of dollars. In 2020 alone, FCRA lawsuit settlements were reached for $4.75 million, $4.25 million, $1.28 million, $500,000, $220,000, and $120,000. In addition, an $18 million settlement was proposed and an “excessive” $60 million damages award was reduced by an appeals court.

On January 5, 2021, the Consumer Financial Protection Bureau (CFPB) – which enforces the FCRA – released a “Taskforce on Federal Consumer Financial Law Report” (Volume I and Volume II) that made more than 100 recommendations on how to improve consumer protection in the financial marketplace including recommending that Congress amend the FCRA to impose appropriate limits on monetary awards in class action lawsuits.

It stated: “Without appropriate caps, damage claims can create bet-the-company litigation over claims out of all proportion to consumer harm. The FCRA sets statutory damages for a willful violation of any provision of the Act in an amount not less than $100 or more than $1,000, in addition to unlimited punitive damages, plus court costs and attorney fees. It is not clear to the Taskforce why Congress omitted a class action damage cap in the FCRA.”

The CFPB report continued: “Because the FCRA was among the first consumer financial protection laws Congress adopted, a clear precedent for capping class action damages had not yet been set… Whatever the reason for the original absence of a cap on class awards, the Taskforce can see no reason to subject CRAs, users of consumer reports, employers, merchants, and other businesses to unlimited potential liability.”

Some courts did not rule for plaintiffs in FCRA lawsuits and instead found a CRA complied with FCRA accuracy standards, found a plaintiff lacked standing to sue for technical violations of the FCRA, affirmed the dismissal of an FCRA suit for a missing item on a credit report, affirmed the dismissal of an FCRA suit for a credit report error, and held that obtaining a consumer report to verify identity was a “permissible purpose” under the FCRA.

Another case examined the “willfulness standard” of the FCRA. On June 19, 2020, an appeals court vacated a jury’s finding that a major nationwide CRA willfully violated the FCRA by failing to investigate a dispute from a consumer. The court concluded the verdict of willfulness “cannot stand” since the plaintiff failed to establish clear and convincing evidence that the CRA “ran an unjustifiably high risk of violating its duties under the FCRA.”

Another court adopted a “concise explanation” standard for FCRA disclosure forms. On March 20, 2020, an appeals court issued an opinion that disclosure forms required before obtaining consumer reports under the FCRA may include a brief explanation about the reports, how they may be used, and that employers are not required to provide job applicants and employees opportunities to discuss consumer reports with them.

Yet another court ruled FCRA disclosures can be provided with other materials. On April 24, 2020, an appeals court affirmed a district court’s summary judgment and held that the FCRA rule forbidding procurement of a consumer report unless “a clear and conspicuous disclosure has been made in writing to the consumer… in a document that consists solely of the disclosure” does not prohibit presentation with other application materials.

“Congress and regulators should also consider providing an official form for the disclosure requirements under the FCRA, rather than make employers guess at what is compliant,” explained Attorney Lester Rosen. “A great deal of class action litigation has been based on arguments over the exact verbiage in the disclosure form, even though there is little if any evidence any consumers are actually harmed if the form is not perfect.”

Rosen, the founder and chief executive officer (CEO) of ESR, said the CFPB already provides “A Summary of Your Rights Under the Fair Credit Reporting Act” to let consumers know their rights when undergoing a background check. “It only makes sense that needless litigation can be avoided by the government specifying the exact disclosure form rather than clogging up courts with class action lawsuits based on technicalities,” said Rosen.

Employment Screening Resources® (ESR) – a leading global background check provider that was named the number one screening firm by HRO Today – offers two white papers about “Common Ways Consumer Reporting Agencies are Sued Under the FCRA” and “Common Ways Prospective or Current Employees Sue Employers Under the FCRA” to help with FCRA compliance. To learn more about ESR, visit www.esrcheck.com.

Since 2008, Employment Screening Resources® (ESR) has annually selected the “ESR Top Ten Background Check Trends” that feature emerging and influential trends in the background screening industry. Each of the top background check trends for 2021 will be announced via the ESR News Blog and listed on the ESR background check trends web page at www.esrcheck.com/Tools-Resources/ESR-Top-Ten-Background-Check-Trends/.

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.

© 2021 Employment Screening Resources® (ESR) – Making copies of or using any part of the ESR News Blog or ESR website for any purpose other than your own personal use is prohibited unless written authorization is first obtained from ESR.