Fair Credit Reporting Act (FCRA)

Written By ESR News Blog Editor Thomas Ahearn

On February 16, 2021, a federal magistrate judge in California approved a settlement of nearly $175,000 in a class action lawsuit claiming a violation of the “stand-alone” disclosure requirement of the Fair Credit Reporting Act (FCRA) which requires a person seeking to procure a consumer report for employment purposes to provide job applicants with a “clear and conspicuous disclosure… in a document that consists solely of the disclosure.”

The FCRA 15 U.S.C § 1681 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). The FCRA also protects consumers from the willful and/or negligent inclusion of inaccurate information in their consumer reports, and regulates the collection, dissemination, and use of consumer information, including consumer credit information.

In the case of Taafua v. Quantum Global Technologies (No. 18-cv-06602-VKD), Plaintiff Paniani Taafua obtained employment with Defendant Quantum Global Technologies, LLC (QGT) which required each job applicant to sign a disclosure form authorizing QGT to obtain a consumer report from a third-party background screening company. However, the form also included a liability waiver in addition to the consumer report disclosure.

Plaintiff claimed the inclusion of the liability waiver violated the FCRA and that he “was confused by the standard disclosure authorization form and did not understand that [QGT] would be requesting a consumer report as defined in the FCRA.” Plaintiff filed the lawsuit on behalf of himself and over 1,000 other job applicants. The parties agreed to a total settlement of $174,980, which was approved by U.S. Magistrate Judge Virginia K. DeMarchi.

Class action lawsuits for alleged violations of the FCRA have become all too common and can result in monetary awards in the thousands and even millions of dollars. In 2020 alone, FCRA class action 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.

In January 2021, the Consumer Financial Protection Bureau (CFPB) – the government agency that enforces the FCRA – released a “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 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 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.”

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.

Employment Screening Resources® (ESR) – which was ranked the number one screening firm by HRO Today in 2020 – 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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