I. INTRODUCTION
Employers may use consumer reports when either hiring new employees or when evaluating current employees for promotion, reassignment or retention purposes but must comply with the Fair Credit Reporting Act (FCRA) as amended, effective September 30, 1997. Sections 604, 606, and 615 of the FCRA address the use of consumer reports for employment purposes. The intent of these sections is to protect the privacy of consumer report information and to ensure that the information supplied by consumer reporting agencies is accurate. Employer responsibilities were increased due to concern that inaccurate or incomplete consumer reports may result in the denial of employment to either applicants or employees. The FCRA amendments provide that: (1) individuals are aware that consumer reports may be used for employment purposes and agree to such use, and (2) individuals are notified promptly if information in a consumer report may result in a negative employment decision.
II. USING CONSUMER REPORTS
The FCRA applies to any report prepared by a consumer reporting agency, i.e., a business that assembles such reports for other businesses. A consumer report includes background checks on an applicant or employee; an applicant’s or employee’s credit payment records, driving record or criminal history; and investigative consumer reports, i.e., reports that include interviews with an applicant’s or employee’s friends, neighbors and associates.
Applicants may be requested to give references. Verification of references may be subject to the FCRA depending upon who performs the verification. Although reference verification performed by the employer is not covered by the FCRA, a reference verified by an employment agency, a reference checking agency or a consumer reporting agency, it is subject to the FCRA. Basic procedures for reference checking are found in § 603(o). An investigative consumer report is subject to additional FCRA requirements.
III. NOTICE AND PRE-AUTHROIZATION IN WRITING
Before a consumer report may be obtained for employment purposes, an employer must provide written notification (by a separate document consisting solely of the notice) to the applicant or employee that a consumer report may be used. Prior to ordering a consumer reporting agency to provide a report, an employer must obtain an applicant’s or employee’s written authorization before you ask a CRA for the report.
IV. ADVERSE ACTION PROCEDURES
If reliance on a consumer report results in “adverse action” (e.g., denying an applicant employment, reassigning an employee, terminating an employee or denying a promotion), an employer must:
V. CERTIFICATIONS TO CONSUMER REPORTING AGENCIES
Prior to submitting an applicant’s or employee’s consumer report to an employer, the consumer reporting agency will require an employer to certify compliance with the FCRA and that any information contained therein will not be misused in the in violation of federal or state equal employment opportunity laws or regulations.
VI. COMPLIANCE ISSUES
A bank publishes an advertisement for a teller position and receives over 50 applications. As a bank officer in charge of hiring this position, you would like to order credit reports on each applicant and eliminate any reported to have poor credit histories. May the bank officer proceed in this manner?
The bank may order credit reports on all applicants (note that a credit report is a covered consumer report), but each applicant must be given written notification a credit report may be requested. Prior to ordering such report, the bank must receive the applicant’s written consent. Prior to rejecting an applicant based on information in the credit report, the bank must give a pre-adverse action disclosure, including a copy of the credit report and a summary of consumer rights under the FCRA. When an applicant is turned down for the job, the bank must give an adverse action notice if credit report information affected the decision.
Several long-term employees are being considered for a promotion. The bank officer in charge of hiring would like to check each employee’s consumer report to see if there is any information that may “weed out” employees with undesirable background information. May the bank officer proceed in this manner?
The bank may obtain such consumer reports if an employee is notified in writing that a report may be obtained and the employee has given his or her written permission. An employee may have given written permission in the past, but in such case, an employer should ensure that the employee receive or has received a separate notice that consumer reports may be obtained during the course of employment (i.e., another notice not required if a clear and conspicuous written separate disclosure has been obtained and has not a part of the employment application or any other document). The FCRA does not impose a further obligation on an employer to provide a new disclosure or obtain a new authorization for an employee that initially authorized the employer to obtain subsequent consumer reports during the course of employment. If an employee has not received notice and granted authorization, the employer must notify the employee and obtain written authorization prior to receiving such consumer report. If information in a report influences the bank to deny a promotion to an employee, the bank must provide the employee with a pre-adverse action disclosure. The employee also must receive an adverse action notice if the bank chooses another employee for the promotion.
An applicant for employment authorizes the bank to obtain a consumer report. The credit history of the applicant is poor and is a negative factor, but the applicant’s lack of experience is the basis of the bank’s decision to not hire. Must the bank proceed with adverse action notification?
Any time that information in a consumer report is a factor in a decision to hire, although not the main consideration, an employer must comply with the FCRA and provide the applicant with a pre-adverse action disclosure prior to rejecting the application. Upon rejection of the applicant, the bank must provide an adverse action notice.
Applicants authorize the bank to obtain credit reports and as a result, one applicant is rejected because the credit report shows a debt load too high for the proposed salary (although the report shows a good repayment history) and a second applicant is rejected because the credit report shows only one credit account. Are adverse action notices required?
Yes, each applicant is entitled to a pre-adverse action disclosure and an adverse action notice. If any information (even if information is not negative) in the credit report influences an adverse decision, any applicant is entitled to these notices.