Fair Credit Reporting Act (FCRA)

Written By ESR News Blog Editor Thomas Ahearn

On March 31, 2021, a California District Court ruled in favor of the plaintiffs in the class action lawsuit Arnold, et al. v. DMG Mori USA, Inc. that claimed an employer violated the “stand-alone” disclosure requirement of the Fair Credit Reporting Act (FCRA) which requires employers procuring consumer reports for employment to provide job applicants with a “clear and conspicuous disclosure… in a document that consists solely of the disclosure.”

Plaintiffs Brandon Bebault and Steven Arnold sued their former employer, defendant DMG Mori USA, Inc., for obtaining background reports on prospective employees with disclosure and authorization forms that violated the FCRA. The District Court certified a class consisting of “all persons residing in the United States for whom DMG procured or caused to be procured a consumer report for employment purposes on or after April 19, 2016.”

The United States District Court Northern District of California concluded that DMG’s disclosure form violated the FCRA because it included a description of consumer rights under California, Maine, Minnesota, New York, Oklahoma, Oregon, and Washington state consumer reporting laws, and contained information about applicants’ right to request whether a background check was run on them and to request a copy of their report.

United States District Judge James Donato granted summary judgment for the plaintiffs and found DMG’s violations were “willful.” The case was referred to a Magistrate Judge for a settlement conference. Damages for FCRA violations can range from $100 to $1,000 per class member. The precise number of class members is not clear but could be approximately between 668 and 1,138 members, according to the summary judgment.

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 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.

“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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