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Published: 2008-03-26

Important Information About The Fair Credit Reporting Act



Employers often use outside agencies to obtain information on job applicants or current employees. While such information can help companies maintain a responsible and efficient workforce, unwary employers may find themselves subject to civil and possibly even criminal liability for violation of the Fair Credit Reporting Act ("FCRA"). 15 U.S.C. §§ 1681 - 1681u (1982 & Supp. 1997). Therefore, employers are wise to familiarize themselves with their obligations under the FCRA, including those imposed by recent amendments to the Act that became effective September 30, 1997. Some of these obligations are discussed below.

Scope of the FCRA

The FCRA is a broad statute and applies to, among other things, an employer's use of an outside agency to obtain information (called "consumer reports") relating to an applicant's or employee's "character, general reputation, personal characteristics, or mode of living." Thus, the FCRA may apply when an employer seeks to obtain information from an outside agency about an applicant's or employee's credit history, criminal background, motor vehicle record, or workers' compensation history.

Outside Agency

The FCRA's definition of "outside agency" is also broad, and is not, for example, restricted to commercial credit bureaus. Any third party who -- for a fee or on a cooperative nonprofit basis -- provides information about an applicant or employee, is treated as a provider of consumer reports. Thus an employer's use of any outside agency to obtain information regarding an applicant or employee will trigger the employer's obligations under the Act.

Employers' Obligations When Obtaining "Consumer Reports"

Employers wishing to obtain a consumer report on a job applicant or employee must follow the requirements set forth in the FCRA.

  • Before requesting the consumer report, employers must:

    (1) Provide written disclosure to the individual. Send a clear and conspicuous written disclosure statement to the applicant or employee indicating that you intend to obtain a consumer report for employment purposes. The disclosure must be set forth in a separate document consisting solely of the disclosure. (See Footnote 1.) See sample disclosure letter later in this Alert.

    (2) Obtain written authorization from the individual. Get a written authorization from the applicant or employee to procure the consumer report. You can accomplish this by asking the applicant or employee to sign and return the disclosure statement, provided it includes express language authorizing the employer to obtain the consumer report.

  • Before obtaining the consumer report, employers must provide certification of compliance to the agency.

    Employers should certify to the outside agency that (a) the above steps have been followed; (b) the information being obtained will not be used in violation of any federal or state equal employment opportunity law; and (c) if any adverse action is going to be taken based on the report, a copy of the report and a summary of rights will be provided to the applicant or employee.

Employers' Obligations When Using A Consumer Report to Make an Adverse Decision

Employers who rely on a consumer report in any way, even if only partially, to make an adverse employment decision are subject to the following additional obligations under the FCRA.

  • Before using the consumer report to make an adverse decision, employers must provide written information to the individual.

    Send the applicant or employee (a) a copy of the report; and (b) a description in writing of her or his rights under the FCRA. (See Footnote 2.)

    Although this requirement is designed to allow an applicant or employee an opportunity to explain unfavorable information contained in the consumer report prior to an adverse action being taken, the FCRA does not require the employer to consider any such explanations in making its decision.

  • After using the consumer report, employers must provide written explanation to the individual.

    If an employer uses a consumer report, in whole or in part, to make an adverse employment decision, the employer should provide the applicant or employee with:

    (1) notice of the adverse action;

    (2) the name, address, and telephone number (including a toll-free number, if available) of the agency that provided the report;

    (3) a statement that the agency did not take the adverse action and is not able to explain why the decision was made;

    (4) a statement setting forth the applicant or employee's rights to obtain free disclosure of their file from the agency if the individual requests the report within 60 days; and

    (5) a statement setting forth the applicant or employee's right to dispute directly with the agency the accuracy or completeness of any information provided by the agency.

Consumer Reports Containing Medical Information

Employers should be aware that the FCRA prohibits a consumer agency from furnishing a consumer report containing medical information, unless the consumer has consented to the furnishing of the report. In addition, employers seeking to obtain or disclose medical information about an applicant or employee must also be careful to consider restrictions created by other statutes, including the Americans with Disabilities Act ("ADA"), which prohibits, for example, preemployment medical inquiries, and the California Confidentiality of Medical Information Act, which requires written authorization from an employee prior to disclosure of medical information possessed by an employer.

Investigative Consumer Reports

Employers seeking to obtain information about an applicant or employee through interviews with the individual's neighbors, friends, associates or the like (as opposed to from an outside agency) are subject to additional requirements. While few employers utilize "investigative consumer reports," those that do should familiarize themselves with the applicable provisions of the FCRA.

Penalties For Non-Compliance

Violations of the FCRA can lead to both civil and criminal penalties. Civil penalties, including nominal damages (up to one thousand dollars if no actual damages exist), actual damages (including emotional distress), and punitive damages, plus attorneys' fees and costs, may apply where there is "willful noncompliance" with the Act. Civil penalties for "negligent noncompliance" are restricted to actual damages and attorneys' fees and costs. Criminal penalties may apply where an individual knowingly and willfully obtains information from a consumer reporting agency under false pretenses.


1/ California employers also should be aware of their obligations under the Consumer Credit Reporting Agencies Act ("CCRAA"). Under that Act, an employer must not only provide written notice that a consumer report will be used, but must also inform the applicant or employee of the source of the report, and allow them to check off a box requesting that they receive a copy of the report. If the person so requests a copy, it is the employer's responsibility to ask the consumer reporting agency to provide it.

Note, however, that CCRAA pertains solely to consumer credit reports, which are more narrowly defined than the consumer reports governed by the FCRA. In contrast to the latter, which can relate to an individual's character, general reputation, personal characteristics or mode of living, in addition to credit-related information, credit reports governed by the CCRAA are limited to those bearing on an individual's credit worthiness, credit standing, or credit capacity only. return

2/ The Federal Trade Commission has promulgated a summary of these rights, a copy of which is attached. return


  • SAMPLE DISCLOSURE LETTER
    • Dear Applicant or Employee:

      _______________ ("the Company") wishes to obtain a Consumer Report ("Report") on you from ___________________, a consumer reporting agency. The Report may include information bearing on your credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living. This Report will be obtained for employment purposes only.

      Please sign this letter below, indicating your authorization for the Company to obtain a Report.

      Sincerely,

      [Signature]

      Employee/Applicant Authorization

      I, ________________________________, hereby voluntarily authorize the Company to obtain a Consumer Report on me from a consumer reporting agency for employment purposes.

      _______________________
      Date

      _______________________
      Signature

      _______________________
      Social Security Number


  • SUMMARY OF RIGHTS PROMULGATED BY FEDERAL TRADE COMMISSION
    • A Summary of Your Rights Under the Fair Credit Reporting Act

      The federal Fair Credit Reporting Act (FCRA) is designed to promote accuracy, fairness, and privacy of information in the files of every "consumer reporting agency" (CRA). Most CRAs are credit bureaus that gather and sell information about you -- such as if you pay your bills on time or have filed bankruptcy -- to creditors, employers, landlords, and other businesses. You can find the complete text of the FCRA, 15 U.S.C. §§ 1681-1681u, at the Federal Trade Commission's web site (http://www.ftc.gov). The FCRA gives you specific rights, as outlined below. You may have additional rights under state law. You may contact a state or local consumer protection agency or a state attorney general to learn those rights.


      • You must be told if information in your file has been used against you. Anyone who uses information from a CRA to take action against you -- such as denying an application for credit, insurance, or employment -- must tell you, and give you the name, address, and phone number of the CRA that provided the consumer report.

      • You can find out what is in your file. At your request, a CRA must give you the information in your file, and a list of everyone who has requested it recently. There is no charge for the report if a person has taken action against you because of information supplied by the CRA, if you request the report within 60 days of receiving notice of the action. You also are entitled to one free report every twelve months upon request if you certify that (1) you are unemployed and plan to seek employment within 60 days, (2) you are on welfare, or (3) your report is inaccurate due to fraud. Otherwise, a CRA may charge you up to eight dollars.

      • You can dispute inaccurate information with the CRA. If you tell a CRA that your file contains inaccurate information, the CRA must investigate the items (usually within 30 days) by presenting to its information source all relevant evidence you submit, unless your dispute is frivolous. The source must review your evidence and report its findings to the CRA. (The source also must advise national CRAs -- to which it has provided the data -- of any error.) The CRA must give you a written report of the investigation, and a copy of your report if the investigation results in any change. If the CRA's investigation does not resolve the dispute, you may add a brief statement to your file. The CRA must normally include a summary of your statement in future reports. If an item is deleted or a dispute statement is filed, you may ask that anyone who has recently received your report be notified of the change.

      • Inaccurate information must be corrected or deleted. A CRA must remove or correct inaccurate or unverified information from its files, usually within 30 days after you dispute it. However, the CRA is not required to remove accurate data from your file unless it is outdated (as described below) or cannot be verified. If your dispute results in any change to your report, the CRA cannot reinsert into your file a disputed item unless the information source verifies its accuracy and completeness. In addition, the CRA must give you a written notice telling you it has reinserted the item. The notice must include the name, address and phone number of the information source.

      • You can dispute inaccurate items with the source of the information. If you tell anyone -- such as a creditor who reports to a CRA -- that you dispute an item, they may not then report the information to a CRA without including a notice of your dispute. In addition, once you've notified the source of the error in writing, it may not continue to report the information if it is, in fact, an error.

      • Outdated information may not be reported. In most cases, a CRA may not report negative information that is more than seven years old; ten years for bankruptcies.

      • Access to your file is limited. A CRA may provide information about you only to people with a need recognized by the FCRA -- usually to consider an application with a creditor, insurer, employer, landlord, or other business.

      • Your consent is required for reports that are provided to employers, or reports that contain medical information. A CRA may not give out information about you to your employer, or prospective employer, without your written consent. A CRA may not report medical information about you to creditors, insurers, or employers without your permission.

      • You may choose to exclude your name from CRA lists for unsolicited credit and insurance offers. Creditors and insurers may use file information as the basis for sending you unsolicited offers of credit or insurance. Such offers must include a toll free phone number for you to call if you want your name and address removed from future lists. If you call, you must be kept off the lists for two years. If you request, complete, and return the CRA form provided for this purpose, you must be taken off the lists indefinitely.

      • You may seek damages from violators. If a CRA, a user or (in some cases) a provider of CRA data, violates the FCRA, you may sue them in state or federal court.


Client Alert is published solely for the interest of friends and clients of Paul, Hastings, Janofsky & Walker LLP and should in no way be relied upon or construed as legal advice. For specific information on recent developments or particular factual situations, the opinion of legal counsel should be sought. PHJ&W is a partnership, including professional corporations