A class action case filed against a large financial institution – one of the nation’s top 10 banks – shows once again that legal compliance is a critical part of any background screening program.  The lawsuit was filed on behalf of an employee alleging violations of the federal Fair Credit Reporting Act (FCRA). According to a press release from the Attorneys for the Plaintiff, the lawsuit alleges that the financial institution obtained background checks in violation of the FCRA and failed to provide required notices.  The Plaintiff seeks to represent a class of all of the financial institution’s employees and job applicants for the past three years.

The lawsuit – filed in the United States District Court for the District of Maryland – alleges the financial institution violated the FCRA in two ways:

  • First, the lawsuit alleges that the financial institution’s authorization form is flawed. The law imposes strict formatting requirements on companies who do background checks. The Plaintiff alleges that by burying its background check authorization in a job application, including extraneous information, the financial institution violated the FCRA. The FCRA requires that a consumer receive a “clear and conspicuous” disclosure in a document that consists solely of the disclosure that a background report may be obtained for employment purposes.
  • Second, the lawsuit also alleges that the financial institution failed to provide copies of the background reports when it used them to take adverse employment actions, such as refusing to hire an applicant, refusing to promote an employee, or terminating an employee. The FCRA requires employers to provide consumers with copies of their background checks if the employer intends to take adverse action that is based in any part on the background check report, along with a statement of rights prepared by the Federal Trade Commission (FTC), so consumers have an opportunity to contest any information they feel is inaccurate or incomplete.  If the employer proceeds to take adverse action, a second post-adverse action notice is required.

Based on the Attorneys for the Plaintiff’s understanding of the financial institution’s practices, everyone who has applied or worked for the financial institution in the past three years should be eligible to receive statutory damages if the lawsuit succeeds. Additional information about the case can be found at http://www.nka.com/capital-one.

The lawsuit demonstrates that violations of the FCRA can create large potential liability.  Potential class members, including employees and prospective employees, may be entitled to statutory damages of up to $1,000 for each violation in the case of will non-compliance. Class action lawsuits also create exposure for large awards of attorneys fees and the potential exposure to punitive damages.  A United States Supreme Court case decided in June 2007, Safeco Ins. Co. v. Burr, substantially increased the risk of punitive damages under the FCRA by ruling that a reckless disregard of the FCRA could be sufficient to show “willful” non-compliance. The net effect is that it is now easier to sue an employer or a background screening firm for punitive damages. More information about the case may be found at: https://www.esrcheck.com/newsletter/archives/June_2007.php#T1.

To be clear, these civil claims against the financial institution are just allegations and there have been no factual determinations.  The mere fact that a lawsuit is filed and allegations are made by no means proves the validity of the claims, and filing of the lawsuit is merely the first step in the legal process. However, this sort of lawsuit underscores the need for employers to carefully review background checking programs and to work with accredited background screening firms that can provide information to assist in compliance with the federal Fair Credit Reporting Act (FCRA) and various other federal and state laws concerning background checks.

Employment Screening Resources (ESR) provides its clients substantial educational materials designed specifically to assist in compliance matters.  Although a background screening firm cannot provide legal advice, employers can expect a professional background screening firm to provide industry standard guidance that assists in compliance.  The ESR web site contains an article called “The FCRA in Four Easy Steps” that addresses the issues raised in this legal action at: https://www.esrcheck.com/articles/Complying-with-the-Fair-Credit-Reporting-Act.php.

For more information about background checks and compliance with the FCRA, visit Employment Screening Resources (ESR) – a nationwide background check firm accredited by The National Association of Professional background Screeners (NAPBS) – at https://www.esrcheck.com/ or call ESR toll free at 888.999.4474.


About Employment Screening Resources (ESR):
Founded in 1997 in the San Francisco, CA area,
Employment Screening Resources (ESR) literally wrote the book on background screening with “The Safe Hiring Manual” by ESR Founder and CEO Lester Rosen. ESR streamlines the screening process and reduces administrative overhead though its proprietary technology solutions.  ESR is accredited by The National Association of Professional Background Screeners (NAPBS®), a distinction held by less than two percent of all screening firms. This important recognition was achieved by successfully passing a third party audit demonstrating compliance with the NAPBS Background Screening Agency Accreditation Program. By choosing an accredited screening firm like ESR, employers know they have selected an agency that meets the highest industry standards. For more information about ESR, visit https://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 [email protected].