All posts by Les Rosen

New Identity Theft Rules Effective November 1, 2008 Unlikely to Have Substantial Impact on Employers

New rules cornering address discrepancies in consumer credit reports that could help to prevent identity theft go into effect November 1, 2008.  Beyond potentially creating some additional hoops to jump through,  the new rules are not likely as a practical matter to have a great deal of impact on employers and may even help employers avoid hiring someone operating with a stolen identification.

The new rules were written by various federal agencies as a result of provisions in the 2003 Fair and Accurate Credit Transactions Act of 2003 (FACTA), designed to combat identity theft when “Red Flags” were raised in credit reports.  Although employers are affected, the rules go well beyond employment and also regulate financial institutions and creditors.

Since the regulations are new, it is not yet entirely clear how they will be implemented.  However, employers would be impacted if they request a credit report from a background screening firm as part of a background report.  The credit reports are supplied to background firms by one of the three national credit bureaus, which are Experian, Trans Union or Equifax.

It also important to keep in mind that for employment purposes, these regulations only apply to information from a national credit bureau, which will mean as a practical matter it is limited to only those applicants where an employer requests a credit report.  Other types of background reports, such as criminal records, driving records, past employment or educational verification are not impacted.

If the credit bureau finds an address discrepancy which raises a “Red Flag,” the employer would receive a notice from the credit bureaus.  This could occur if the applicant submits an address that the credit bureaus do not find in their records, or it appears that there is a “substantial difference” between the applicant’s address and what the credit bureau has on file.

An employer that utilizes credit reports will need to establish a policy on how it will verify the applicant’s identity through reasonable means, such as confirming information directly with the applicant, using third party sources or utilizing other materials, such as employment application forms.

Once the address and identity of the applicant is clarified, an employer also under certain circumstances must then send back the newly confirmed address to the credit bureaus.  Although there will need to be some clarification in the near future on how this will work exactly,  it would appear reasonable that the background firm providing the credit report may be able to act as the go-between for the employer and the national credit bureau in the administration of this rule.

The important point for employers is that the address discrepancy notices are not likely to be a significant burden on employers or Human Resources professionals. Employers would expect to receive such notices primarily in two situations; First, if an applicant has moved to a new address that has not been picked up by credit bureaus, such a notice may be generated.  Secondly, an employer may get a notice where there is a case of identity theft with an applicant impersonating someone else.  In that event, employers will benefit from the new rules.

Once the actual operations of the regulations become clearer, ESR will provide its clients with a sample policy and will assist clients if and when such a notice is received. ESR will also provide training to all clients that request credit reports as part of their background checking protocol.

Governor Vetoes Two California Bills that Would Have Affected Background Checks

In the September, 2008 issue of the ESR Newsletter, readers were alerted to two bills in California that would have affected background checks.  Both bills were vetoed by Governor Schwarzenegger.

  • AB 2918 would have severely restricted the use of employment credit reports.
  • AB 3063 would have amended California law on the usage of criminal records.

For a copy of the Governor’s veto message, please contact Jared Callahan at 415-898-0044 or by e-mail at

Four Years Later, the Texas Statewide Criminal Database is Still Full of Holes

Four years ago, ESR reported an investigation by the Dallas News concerning inadequacies in the statewide criminal database maintained by the Texas Department of Public Safety (TDPS).  That database is widely use by law enforcement, employers and consumers, among others, and is also used to perform screenings on teachers, volunteers and caregivers that work with children, the sick and the frail.  The original article can be found in the ESR newsletter archives at:

In that article, ESR reported that according to the newspaper article, the Texas database was used over 3 million times a year, but it only had 69 percent of the complete criminal histories records for 2002.

The Dallas News revisited the story in August 2008 and found, essentially, that nothing had changed. For 2006, the database still only had 69% of the state’s criminal history. The story noted that only 106 out of Texas’ 254 counties reported electronically, and even then there appeared to be glitches or communication issues with various state law enforcement agencies.  Other problems had to do with keeping trained personnel or officials in smaller jurisdictions forgetting to report the status of a case. 

This story underscores a common issue for employers performing background checks.  Searches of criminal databases can be problematic.  ESR recommends that employers keep the following in mind when utilizing criminal databases;

1.  Database searches available to private employers are NOT FBI database searches. FBI records are only available to certain employers or industries where Congress or a state has granted access.  Searches offered by background firms are drawn from government data that is commercially available or has been made public.

2.  Although multi-jurisdictional and statewide databases searches can be extremely valuable because they cover a wide area and access millions of records, employers are well-advised to use them primarily as a research tool or lead-generator and not as a substitute for a hands-on search at the county level under any circumstances (or the functional equivalent of a county level search). The best use is to indicate additional places to search in case a record is found in a jurisdiction that was not searched at the county court level.

3.  In addition, not all states have a database that is available to employers.  In some instances, the databases that are available have limited information.  Therefore, the value of these searches may be very limited in some states. An employer should carefully review what information is available in their state and not merely depend upon a database search.

4.  Databases in each state are compiled from a number of sources.  There are a number of reasons that database information may not be accurate or complete. Because of the nature of databases, the appearance of a person’s name on a database is not an indication the person is criminal any more than the absence of a name shows he/she is not a criminal. Any positive match MUST be verified by reviewing the actual court records. Any lack of a match is not the same as a person being “cleared.” However, a database is a valuable tool in helping employers cover a wider area and know where to search for more information.

5.  The search is based upon matching the name and the date of birth in order to eliminate computer matches that are not applicable. Note: In some states, there is no, or limited, date of birth information.  The database description will indicate where the records do not contain a date of birth, which means a search of that state will have little or no value.

6.  The best practice is for all possible “hits” to be reconfirmed at the county court level to insure whether information is accurate, complete and up to date at the time it is reported, per FCRA Section 613. Also, keep in mind that a criminal record should not be used to automatically disqualify an applicant, without taking into account the EEOC rules as to what is a job-related criminal offense.

Legislative Alert for California: Two Bills Await the Governor’s Approval or Veto

There are currently two bills that have passed the state legislature in California that are awaiting a decision by the Governor.  AB 2918 radically changes the use of credit reports for employment purposes.  According to the California Legislative Counsel, “This bill would prohibit the user of a consumer credit report, with the exception of certain financial institutions, from obtaining a consumer credit report for employment purposes unless the information is (1) substantially job related, meaning that the information in the consumer credit report relates to the position for which the person who is the subject of the report is being evaluated because the position has one or more specified characteristics, is a highly compensated or managerial one, or (2) required by law to be disclosed to, or obtained by, the user of the report.”  There is no definition as to what “highly compensated or managerial positions” means.  This bill, if signed into law by the Governor, represents a growing trend to limit the use of credit reports for employment purposes.

It is important to note that an employment credit report does NOT contain a credit score, since that is not a valid predictor of job performance.  However, it does contain a credit history, such as late payments and amounts due to financial institutions.  In numerous articles, ESR has advised employers to approach credit reports with caution.  However, this bill may result in outlawing employers from running credit reports on bookkeepers or others that handle money or have access to assets.

A second bill that is currently at the Governor’s desk awaiting his approval or veto is AB 3063. According to the California Legislative Counsel, this law would clarify existing California law dealing with the technical rules on the use of criminal records by employers.  Currently, the regulations of the Department of Fair Employment and Housing prohibit certain criminal matters from being considered by employers.  This law would place those same restrictions in the Labor Code. This bill would have no impact on ESR clients since ESR already utilizes the criteria of the Department of Fair Employment and Housing Commission in determining if a criminal record should be reported.

ESR will immediately send a special newsletter to its clients if these bills are signed into law that will explain the practical impact.

Screening Firms Join Effort to Prevent Threats to Consumers from Offshoring of Personal and Private Data

ESR has joined a group of like-minded Consumer Reporting Agencies that reject the offshoring of consumer data. ESR is pleased to display the Concerned CRAs logo that represents a higher standard of consumer privacy protections. As outlined in the May, 2008 ESR newsletter, some screening firms place job applicants and employers at risk by sending personal and identifiable information (PII) offshore for processing and preparing background reports. The purpose is to take advantage of cheap offshore labor. In some instances, foreign call centers are even used to contact past employers and schools, or to search public record databases for criminal records.  See: .  

The problem?  Once U.S. information leaves our shores, it is completely beyond U.S. Privacy Protections. In order to process background reports, a job applicant’s date of birth and social security number are often needed, which is the key ingredients needed to commit identity theft.  Articles available on the internet document that identities stolen from foreign call centers are often sold illegally for illegitimate purposes.   That is not to suggest that data theft cannot happen here in the U.S.  However, if there is theft of PII in the U.S., there are resources and legal recourse so consumers can protect themselves.  It is impossible as a practical matter for a U.S. consumer to try to contact the police department in a foreign country to file a complaint.

Firms displaying the Concerned CRA’s symbol have self-certified that they do not send data offshore for processing.  Although there is a cost savings to screening firms who offshore consumer data to countries such as India, the risk to consumers in terms of potential identity theft is significant. What is worse is that U.S. job applicants have no idea that when they sign a consent for a background check that their personal data is at risk of going offshore.

In the alternative, the seal can be displayed if a CRA clearly discloses that data is sent offshore and explains the risks, and employers in turn clearly disclose the same to job applicants.

An exception is where an international verification is requested and the information needed is offshore. Even then, however, firms that have joined this effort have certified that they take a number of steps to minimize sending personal information being sent offshore.  For example, before sending consumer data offshore, a firm should make every effort to obtain the information directly from the past employer or school directly.  Data should only be sent offshore to a foreign research firm as a last resort.

ESR strongly advises employers to ask screening firms about their privacy and offshoring practices before risking personal information about their job applicants.  For more information, see

From the Courts: Federal Case Demonstrates Employer Defense to a Negligent Hiring Lawsuit

A federal district court judge in New Haven, Connecticut dismissed a negligent hiring lawsuit against FedEx Kinko’s, where the employer hired a self-admitted sex offender who used his position to solicit customers for his own computer repair business and molested an 8 year old boy whose family he befriended while fixing computers in their home. Continue reading

Background Firm Sued for Reporting Criminal Matters without Using Reasonable Procedures

In another 2008 federal case, a consumer sued a national background screening firm for negligent violation of the FCRA, on the basis that the screening firm failed to utilize reasonable procedures before reporting possible criminal hits.

The federal trial court had granted a summary judgment in favor of the background screening firm, since the plaintiff did not present any expert testimony that the procedures used by the screening firm was unreasonable. On appeal to the United States Court of Appeals for the District of Columbia District, the appellate court reversed the trial court ruling, and ruled that an expert witness was not required in a case against a screening firm for negligence, and that the report by itself can be used as “evidencing unreasonable procedures. Continue reading

Lawsuits Against Background Firms are on the Rise

This issue of the ESR Legal Update and Newsletter reviews two of the lawsuits filed in 2008 against background screening firms by consumers. Although an employer may not always be named as a party in a lawsuit against a screening firm, employers should be concerned if a screening firm’s practices end up as court cases.

These court cases underscore two important facts about pre-employment background checks:

It is an area that is subject to a high degree of regulation by both federal and state law, since it involves such core societal issues as privacy, protection of the public and a safe workplace, and the ability of individuals to obtain employment.

Consumers and plaintiff’s lawyers have become very familiar with the rules that govern screening, and that unless it is done properly by knowledgeable professionals, there is an increased risk of lawsuits being filed.

There is no question that background checks are mission critical for any organization. Background checks are an essential part of any company’s due diligence efforts. The lesson from these cases, however, is that background screening has become a professional endeavor that requires a great deal of legal and subject matter expertise. Employers need to exercise caution in selecting a screening partner by making sure that the screening firm has that professional knowledge and expertise required to perform legally compliant screening.

The names of the litigants are not included in this newsletter, since it is the general principals that are important. A reader of this newsletter with a need to know the details may contact Jared Callahan, Director of Sales and Marketing at ESR for more details. He can be reached by e-mail at

Background Firm Sued for Violation of FCRA by Reporting Existence of Prohibited Records

In this federal case, a national employment screening firm uncovered information that the applicant had an arrest record over seven years ago. There were no convictions, but arrests only. The federal Fair Credit Reporting Act (FCRA) prohibits the reporting of an arrest older than seven years old, unless the applicant is reasonably expected to make a salary of over $75,000 per year. See FCRA section 605 (15 U.S.C. 1681c). Continue reading

Top 10 Signs You are Hiring a Lawsuit Waiting to Happen

Employee lawsuits often catch employers by surprise. Yet, an examination of the employee’s application shows that an employer could often have predicted, well in advance, that they were hiring a lawsuit just waiting to happen.

By looking for the following ten (10) danger signals, an employer can avoid hiring a problem in the first place.

  1. Applicant does not sign application. An applicant with something to hide may purposely not sign the application form so they later cannot be accused of falsification.
  2. Applicant does not sign consent for background screening. When a firm uses an outside agency to perform screening, federal law requires a separate disclosure and consent. A background consent form protects employers in two ways: It discourages applicants with something to hide and encourages candid interviews. If a firm does not perform some sort of screening, they become the employer of choice for problem applicants. If a candidate fails to sign the consent, that is not a good sign.
  3. Applicant leaves criminal questions blank. An applicant with a past problem may simply skip the questions about criminal records. Every employment application should ask, in the broadest possible terms allowed by law, if the applicant has a criminal record. Most jurisdictions only permit questions about convictions and pending cases. Employers make a big mistake if they only ask about felonies since misdemeanors can be extremely serious. Although employment may not be denied automatically because of a criminal conviction, an employer may consider the nature and gravity of the offense, the nature of the job and the age of the offense in evaluating whether there is a sound business reason not to employ someone with a criminal record. If an applicant lies about a criminal record however, the false application may be the reason to deny employment.
  4. Applicant self-reports a criminal violation. Just because an applicant self-reports an offense does not eliminate the possibility of other offences, or that it was reported it in a misleading way to lessen its seriousness. An employer is well-advised to check it out.
  5. Applicant fails to explain gaps in employment history. It is critical to look for unexplained employment gaps. There can be many reasons for a gap in employment. However, if an applicant cannot account for the past seven to ten years, that can be a red flag. It is also important to know where a person has been because of the way criminal records are maintained in the United States. Contrary to popular belief, there is not a national criminal database available to most employers. Searches must be conducted at each relevant courthouse, and there are over 10,000 courthouses in America. However, if an employer knows where an applicant has been, it increases the accuracy of a criminal search, and decreases the possibility that an applicant has served time for a serious offense.
  6. Applicant fails to give sufficient information to identify a past employer for reference checks. If an applicant does not give enough details about past employers, that can be a sign of trouble. Verifying past employment is a critical and important tool for safe hiring. Some employers make a costly mistake by not checking past employment because past employers may not give detailed information. However, even if a reference check only reveals dates of employment and job titles, this critical information eliminates employment gaps. In addition, documenting the fact that an effort was made will demonstrate due diligence.
  7. Applicant fails to explain reason left past jobs. Past job performance can be an important predictor of future success.
  8. Explanations for employment gaps or reasons for leaving past jobs do not make sense. A careful review of this section is needed and anything that does not make sense must to be cleared up in the interview.
  9. Excessive cross-outs and changes. Can be an indication that an applicant is making it up as they go.
  10. Applicant failed to indicate or cannot recall the name of a former supervisor. Another red flag. Past supervisors are important in order to conduct past employment checks.