IMPORTANT AMENDMENTS TO FEDERAL LAW
The Fair Credit Reporting Act (FCRA), which governs retrieval and use of consumer and credit information from consumer reporting agencies, was extensively amended in 1996. The amendments impose new reporting and disclosure requirements for consumer report users (including specific requirements for employment-related users) and consumer reporting agencies. New requirements applicable to credit and consumer reporting agencies are numerous and beyond the scope of this article. Most of the amendments will go into effect on September 30, 1997.
THE FCRA'S GENERAL PRE-AMENDMENT REQUIREMENTS
Federal law places certain notification requirements and restrictions on the use of consumer and credit information in the hiring process. Any consumer credit report used for employment purposes is subject to the provisions of these laws.
The federal FCRA is far-reaching and broadly defines consumer reports as "any written, oral, or other communication of any information by a consumer reporting agency bearing on a consumer's credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living," where such information is "used or expected to be used or collected in whole or in part for the purpose of serving as a factor in establishing . . . eligibility for . . . employment purposes. ." Thus, many reports aside from traditional "credit reports" fall within the scope of the federal Act and must comply with provisions regulating permissible purposes, procedures for ensuring compliance and accuracy of report information, disclosure requirements, and conditions of disclosure. At least one federal court has held that "virtually any information" communicated by a consumer reporting agency would be defined as a "consumer report" under the FCRA.
A consumer report may be furnished for background check purposes only in accordance with a court order, a request of a governmental agency, written instructions of the job applicant to whom it relates, or the request of an employer that intends to use the information for employment purposes. Any person who requests such information must certify both the purpose for which the information will be used and that the information will not be used for any other purpose.
Any employer who denies employment or otherwise makes any decision for employment purposes that adversely affects any current or prospective employee based in whole or in part on information in a consumer report must provide the employee or prospective employee notice of the adverse action; (2) the name, address, and telephone number of the consumer reporting agency that furnished the report; (3) a statement that the consumer reporting agency did not make the decision to take the adverse action and is unable to provide the consumer the specific reasons why the adverse action was taken; and (4) a written notice of the employee's or prospective employee's rights to obtain a free copy of the consumer report and to dispute the accuracy of the report.
The Act also restricts the use of investigative consumer reports. An "investigative consumer report" is a report in which information on an individual's character, general reputation, personal characteristics, or mode of living is obtained through personal interviews with neighbors, friends, associates, or other personal acquaintances. Under federal law, any reports that fall within the foregoing definition are investigative consumer reports except to the extent that they contain specific factual information on a consumer's credit record obtained directly from a creditor of the consumer or from another consumer reporting agency that obtained the information directly from such a creditor or from the consumer. The provisions of the FCRA must be considered when determining whether an employer is required to provide advance notice to a consumer when an investigative consumer report is to be prepared. Under the federal Act, a person may neither procure nor cause to be prepared an investigative consumer report unless advance notice is provided to the consumer that such a report may be made, such notice is made in writing not later than three (3) days after the date on which the report was first requested, and such notice includes a statement advising the consumer of the right to request additional disclosures as required by law. Other restrictions and notice requirements apply to ensure that the individual subject to such a report has access to the reported information.
Federal law additionally prohibits the reporting of obsolete information as defined by applicable provisions. Any appropriately licensed consumer reporting agency should be well informed and prepared to answer an employer's questions concerning these restrictions, as well as all certification, notice, and disclosure requirements of both federal and state laws. For instance, the FCRA prohibits the reporting of any adverse item of information that antedates the report by more than seven (7) years. This prohibition does not, however, apply where a consumer credit report is to be used in connection with the employment of an individual whose annual salary is reasonably expected to equal $75,000 or more. Consequently, employers utilizing consumer reporting agencies for background checks should be aware that any adverse information antedating the report by more than seven (7) years will not be disclosed on the consumer report requested. For this reason, an employer cannot rely solely on consumer reports for purposes of background checks and employee investigations.
Georgia law does not provide specific restrictions on how employers obtain and use credit or consumer reports for background checks on prospective employees. However, an employer who obtains such information should take caution not to use it in any manner that would subject the employer to liability for of invasion of privacy. Employer policies governing how such information is obtained, used and maintained is vital.
In the civil rights context, the EEOC has concluded that an employer's requirement of a good credit record for applicants has a potentially disproportionate impact on minorities. An employer may avoid liability in this regard by showing that a good credit record is justified by business necessity, based on something specific about the job at issue.
NEW OBLIGATIONS FOR EMPLOYERS USING CONSUMER AND CREDIT REPORTS
New Obligations For Employer Users
The amendments to the FCRA impose specific requirements on persons utilizing consumer report information for employment-related purposes. Such users must:
- Provide a clear and conspicuous written disclosure to the prospective or current employee before procuring the consumer report, in a document consisting solely of the disclosure, notifying him or her that a report may be obtained for employment-related purposes; and
- Receive written authorization from the prospective or current employee granting the employer permission to obtain the consumer report.
- Before taking any adverse action related to employment, provide the prospective or current employee with a copy of the consumer report and a description of the person's rights under the Act. The Federal Trade Commission is authorized to prescribe the form and content of this disclosure.
- Certify compliance to the consumer reporting agency concerning the above requirements , including a statement that information obtained from the report will not be used in violation of any applicable federal or state equal employment opportunity law or regulation.
New Requirements For All Users
Under the new amendments, if any user, including any employer, takes adverse action based at least in part on the information contained in a consumer report, the user must notify the consumer. This notification may be done in writing, orally, or by electronic means, and must include the following:
- The name, address, and telephone number of the consumer reporting agency that furnished the report to the user (including a toll-free telephone number established by the agency if the agency compiles and maintains files on consumers on a nationwide basis);
- A statement indicating that the consumer reporting agency did not make the decision to take the adverse action and is unable to provide the consumer with the specific reasons for the adverse action taken;
- A notification of the consumer's right to obtain a free copy of the report from the consumer reporting agency used, which must indicate that the consumer has a sixty-day period in which to obtain the copy;
- A notification of the consumer's right to dispute directly with the consumer reporting agency the accuracy or completeness of any information in the report that was furnished to the user.
PENALTIES
The amendments to the FCRA's also bear upon civil liability for users and consumer reporting agencies for willful noncompliance. The FCRA, as amended, provides for recovery of actual damages or fixed penalties for violations and additionally permits recovery of attorneys fees under certain circumstances.
SPECIFIC RECOMMENDATIONS FOR OBTAINING AND UTILIZING CREDIT AND CONSUMER REPORTS CONCERNING JOB APPLICANTS
- Establish and enforce a company policy to control the acquisition and use of applicant credit and investigative consumer reports;
- Amend existing policies and practices to comply with the FCRA amendments outlined above;
- Reasonably restrict the number and nature of positions for which a credit or consumer report is required;
- Verify the name and Social Security number contained in the credit or consumer report to make sure that it corresponds to the name and Social Security number provided by the applicant. Any errors, inconsistencies, omissions, or other problems should be brought to the attention of the manager or supervisor responsible for implementation of the company's credit or consumer report policy;
- Make certain that all individuals reading and reviewing credit or consumer reports have been fully trained to understand and properly utilize the information disclosed by the report;
- Do not deny employment based solely on an applicant's bankruptcy. Such discrimination is prohibited by federal law;
- You may want to obtain additional information about an applicant whose credit report indicates that a judgment has been filed against the applicant and has never been satisfied;
- If an applicant's credit report reflects several collection items, offer the applicant an opportunity to explain. However, do not question the applicant about personal details, such as a divorce. Rather, focus on information necessary to evaluate the status of the collection actions;
- Avoid imposing blanket rules concerning employment of individuals with criminal convictions. We nevertheless strongly recommend that criminal background checks be performed on all applicants to be offered employment and that a fact-specific analysis of job requirements be applied when convictions are discovered. With the unfortunate rise in workplace violence, such investigation and analysis is extremely important for every employer.
- Ensure that anyone performing investigatory or consumer reporting work for you is properly licensed and, with permission of such persons, perform background checks on them before they perform the work. Do not assume that a license equals a clear criminal or credit background. Because such persons will have access to personal information regarding job applicants, they should be chosen with great care.
- Require any consumer reporting agency or private investigator participating in your background checks process to confirm both an understanding and compliance with all applicable legal requirements, each of which should be clearly identified in the written confirmation.
- Do not deny employment to an applicant who has a poor credit record if the applicant appears suitable for the position on the basis of other job-related criteria;
- Consider the length of time since the last incident resulting in a poor credit history or other adverse item in a consumer report. Obviously, a lengthy, ongoing history of credit problems or other undesirable events is likely to be more of a risk than old or infrequent problems or incidents;
- Before denying employment on the basis of a credit or consumer report, provide the applicant an opportunity to explain the reasons for a poor credit or consumer report;
- Be prepared to explain the job-related reasons why the applicant's consumer or credit report history renders the applicant unsuitable for a particular position.