Using Credit Reports: Subsequent Disclosure is no Longer Sufficient


Employers frequently use consumer reports and credit checks to gain information about job applicants and promotional candidates, without realizing the problems these reports can create. In many cases, use of credit checks may be a violation of the disclosure provisions of the federal Fair Credit Reporting Act (FCRA).

The FCRA covers two types of credit information: consumer reports and investigative consumer reports. A consumer report is a written or oral communication regarding an individual's credit standing, character, general reputation, personal characteristics or mode of living. When these reports are used for the purpose of evaluating an individual for employment, promotion, or reassignment, an employer must comply with the provisions of the FCRA. An investigative consumer report is simply a more exhaustive type of consumer report, which includes additional information obtained through interviews with the individual's friends, neighbors and others who know that person.

Disclosure and Authorization

Prior to the recent amendments, employers could obtain a consumer report without an individual's consent and without notifying the person. However, the FCRA now requires employers to provide notification to, and receive authorization from, an individual before obtaining a consumer report.

In order to comply with the FCRA, employers must provide potential employees with the following:

  • a separate document containing only the FCRA disclosure;
  • a statement that a consumer report may be obtained by the employer for employment purposes;
  • a separate, dated document, signed and returned by the potential employee, authorizing the employer to obtain a consumer report. (This authorization should contain language documenting the potential employee's receipt of the FCRA disclosure statement.)

Adverse Employment Decisions

Additional disclosures are required when an employer decides not to hire or promote an individual, based in whole or in part on the consumer report. The employer must provide the individual with (1) a copy of the report; and (2) instructions on how to challenge the accuracy of the report. (These instructions typically are provided by the applicable consumer reporting agency.)

Investigative Reports

Because the more detailed investigative consumer reports include information gathered from interviews with neighbors, friends and associates of an individual, additional safeguards are mandated by the FCRA. Specifically, within three days of requesting an investigative report, an employer must notify the person that there may be an inquiry into his or her character and that he or she has the right to request additional information about the nature and scope of the inquiry. If such a request is made, the employer must respond within five days.

Civil Penalties

Failure to follow the disclosure and authorization provisions of the FCRA could result in civil liability for the employer. Individuals harmed due to an employer's failure to comply will be awarded actual damages and attorneys' fees; and in cases of willful violation, punitive damages may also be awarded.