Consumer Reports and the FCRA

Kegler Brown Labor + Employee Relations Newsletter

The dramatic increase in the number of cases of identity theft has led to heightened concern over the collection and use of personal information. In an attempt to alleviate privacy concerns, both internally and externally, many employers frequently request information about potential employees as part of the hiring and promotion process. Often times this information comes in the form of a "consumer report." What many employers do not realize is that the Fair Credit Reporting Act (FCRA) may apply to the information they collect. With that in mind, you should remember the following five points regarding the Fair Credit Reporting Act.

1) The FCRA applies to all consumer reports.
The FCRA governs the use of consumer reports. Generally, a consumer report is any type of communication provided by a consumer reporting agency that has a bearing on an employee's credit, character, general reputation, or mode of living, which is used by the employer for among other things, employment purposes.

A consumer reporting agency is any person or entity which assembles and provides consumer reports to a third party, whether for a fee or on a cooperative nonprofit basis. Further, the FCRA applies to the use of public records, such as court records and motor vehicle reports.

2) Prior to obtaining a consumer report, the employee must be notified.
Prior to ordering any background report on an employee, the employer must notify, and obtain permission from, the employee. The FCRA contains specific notification requirements that must be followed. It is also advisable to give the employee a summary of the employee's rights under the FCRA along with obtaining a consent form.

3) If you are using a third party to check references or obtain results of drug tests of potential employees you must provide a Disclosure of an Investigative Report.
The FCRA does not apply when the employer directly contacts a previous employer or drug testing agency. However, reference checks, when done by a consumer reporting agency, constitute consumer reports. The same applies to drug tests, so long as the results are obtained through a third party. If you enlist the services of a third party to obtain references or drug test results of prospective employees you must comply with the FCRA.

4) If a consumer report is obtained the employee must be given a copy.
If the background information you obtain contains any information which may cause you to take an adverse action (not hire, not promote, demote, terminate etc…) against the employee you must provide the employee with a copy of the report. Notice the regulation applies toany information which may lead to an adverse action, therefore it is wise to send a copy to the customer whenever the information in the report is detrimental.

5) Should you choose to take adverse action against the employee certain disclosures must be made.
The FCRA has certain procedures and requirements that must be followed any time the employer takes an adverse action against the employee on the basis of the information obtained in the consumer report. The FCRA requires the employee be given a copy of the report as well as a written description of his or her rights under this statute. The statute has other requirements as well, and it is important to be familiar with all of the requirements and be sure that your procedures comply with the act.

In conclusion, the FCRA imposes strict requirements on employers regarding the method and accuracy of information they obtain about potential employees. As background checks are becoming more common, it is critical that employers be familiar and in compliance with the FCRA.