Fair Credit Reporting Act (FCRA)

Written By ESR News Blog Editor Thomas Ahearn

On January 5, 2021, the Consumer Financial Protection Bureau (CFPB) released a two-volume “Taskforce on Federal Consumer Financial Law Report” (Volume I and Volume II) that made recommendations on how to improve consumer protection in the financial marketplace including recommending that Congress amend the Fair Credit Reporting Act (FCRA) to impose appropriate limits on monetary awards in FCRA 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 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.

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.”

Lawsuits for alleged violations of the FCRA have become all too common in background screening and can result in monetary awards 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.

The CFPB report also recommended clarifying obligations of CRAs and furnishers with disputes under the FCRA, codifying the interpretations of the FCRA set forth in the Federal Trade Commission’s (FTC) 40-Year Report, assessing the accuracy and completeness of consumer credit reports, and updating the FCRA’s summary of consumer rights, notice to furnishers of information to CRAs, and notice to users of consumer reports.

FCRA lawsuits will continue to serve as legal compliance signposts for employers conducting background checks on job applicants, according to leading global background check provider Employment Screening Resources® (ESR), which compiled the 14th annual “ESR Top Ten Background Check Trends” for 2021. Since 2008, ESR has annually selected the top emerging and influential trends in the background screening industry.

“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,” added Rosen.

Employment Screening Resources® (ESR) – which was named the number one screening firm by HRO Today – offers two complimentary 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 CRAs and employers comply with the FCRA. To learn more about ESR, visit www.esrcheck.com.

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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