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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. 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.
  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:

  1. the above steps have been followed;
  2. the information being obtained will not be used in violation of any federal or state equal employment opportunity law; and
  3. 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:

  1. a copy of the report; and
  2. a description in writing of her or his rights under the FCRA.

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.


Employers who desired to obtain background information on potential employees or employees should be aware of their responsibilities and restrictions upon attempting or obtaining that information. The FCRA protects consumer financial information from being used without notice and consent of the person. Medical information is protected by from disclosure by state and federal law. Even criminal records have limitations as to the information that can be obtained and limitations about how it can be used. An employer would be well advised to seek counsel before obtaining background information on a potential candidate for employment or on a current employee.

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