Fair Credit Reporting Act (FCRA)

Written By ESR News Blog Editor Thomas Ahearn

On October 31, 2018, the Seventh Circuit Court of Appeals decision in the case of Rivera v Allstate Insurance involved a novel question about whether or not an investigation by a third party into employee misconduct could be considered a “consumer report” under the federal Fair Credit Reporting Act (FCRA).

Rivera v Allstate Insurance involved four former portfolio managers at Allstate who sued the company for defamation and violation of the FCRA after being fired following an investigation by an outside law firm that found they timed trades to inflate their bonuses at the expense of the portfolios they managed.

The portfolio managers claimed Allstate violated FCRA 15 U.S.C. § 1681a(y)(2) by failing to give them a summary of the findings of the investigation after they were fired. A jury awarded them more than $27 million in damages and the district judge added punitive damages and attorney’s fees under the FCRA.

Allstate appealed the ruling, arguing in part that the awards on the FCRA claims must be vacated for lack of standing under Spokeo, Inc. v. Robins, a case in which the U.S. Supreme Court ruled consumers must prove “concrete injury” in lawsuits for alleged “bare” violations of federal statutes such as the FCRA.

The Seventh Circuit Court agreed and dismissed the FCRA claims. The Court also was skeptical § 1681a(y)(2) applied to the FCRA claims – even though Allstate did not raise that point – and questioned whether an investigation could be a “consumer report” if it was not conducted by a “consumer reporting agency.”

The FCRA defines a consumer report as communication of information by a consumer reporting agency about a consumer’s credit, character, reputation, characteristics, or mode of living which is then used to establish the consumer’s eligibility for credit, insurance, employment, and other authorized purposes.

FCRA § 1681a(y) covers the “Exclusion of Certain Communications for Employee Investigations” from being a consumer report, including subsection § 1681a(y)(1)(B)(i) when the “communication is made to an employer in connection with an investigation of suspected misconduct relating to employment.”

Although § 1681a defines statutory terms and rules of construction, subsection (y) states that “after taking any adverse action based in whole or in part on” a communication of this type, the employer “shall disclose to the consumer a summary containing the nature and substance” of the communication.

The Court found § 1681a(y)(2) “an odd place to find a regulatory mandate on employer investigations into workplace misconduct. Indeed, the provision is so obscure that in its 15-year existence, subsection (y)(2) of § 1681a appears in no published opinion save the district court’s decision in this case.”

Enacted in 1970, the FCRA promotes the accuracy, fairness, and privacy of consumer information in consumer reports, protects consumers from willful or negligent inclusion of inaccurate information in those reports, and regulates the collection, dissemination, and use of consumer information.

The fact that employers are still being targeted in lawsuits for technical violations of the FCRA even after the Supreme Court ruling in Spokeo is one of the “ESR Top Ten Background Check Trends” for 2018 selected by leading global background check provider Employment Screening Resources® (ESR).

ESR Offers Two White Papers on FCRA Lawsuits

Employment Screening Resources® (ESR) offers two complimentary white papers that examine the causes that lead to FCRA lawsuits: “Common Ways Prospective or Current Employees Sue Employers Under the FCRA” and “Common Ways Consumer Reporting Agencies are Sued Under the FCRA.”

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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