Why Should Employers Care About a Recent Federal Trade Commission Staff Report on the Fair Credit Reporting Act?

Employers sometimes overlook the Fair Credit Reporting Act (“FCRA”) because it doesn’t look or sound like it should have anything to do with employment issues or the hiring and managing of a workforce. Indeed, unlike the Department of Labor (“DOL”) or the Equal Employment Opportunities Commission (“EEOC”), the entities charged with the implementation, oversight, enforcement, and interpretation of the FCRA, the Federal Trade Commission (“FTC”) and the newly-created Consumer Financial Protection Bureau (“CFPB”), don’t seem to have much to do with employment issues either. Nevertheless, the FCRA is important for employers because, among other things, it regulates an employer’s use of “consumer reports,” which can consist of most data collected during an employment-related background investigation, including employment, education, court/criminal history, and, in the case of “investigative consumer reports,” certain information obtained through personal interviews with neighbors, friends, associates, or certain acquaintances.  

Generally, employers must obtain an individual’s permission before requesting a report about that person from a credit reporting company or any other company.  Moreover, before an employer uses information from a report to take an “adverse action” against an individual (e.g., refusal to hire, denial of a promotion, reassignment, discharge, etc.), the employer must give the individual a copy of the report and a document called A Summary of Your Rights Under the Fair Credit Reporting Act.  After an employer takes an adverse action against an individual based on information in a report, it must communicate the following information to that person:  (1) the name, address, and phone number of the company that supplied the information; (2) a statement that the company that supplied the information didn’t make the decision to take the adverse action and can’t give any specific reasons for the decision; and (3) a notice of the individual’s right to dispute the accuracy or completeness of information in the report and to obtain an additional free report if requested within 60 days. 

Since the initial passage of the FCRA in 1970, the FTC has played the key role in the implementation, oversight, enforcement, and interpretation of the law.  Recently, however, the Consumer Financial Protection Act of 2010 created another entity, the CFPB, which will take on primary regulatory and interpretive roles under the FCRA.  For its part, the FTC will retain its enforcement role with respect to the law.  To assist with the transition of regulatory functions to the CFPB, the FTC published a comprehensive report that describes the FCRA and provides a summary of FTC interpretations of the law.  The report, entitled 40 Years of Experience with the Fair Credit Reporting Act: An FTC Staff Report with Summary of Interpretations, is available by clicking here. The FTC report gives a brief overview of the FTC’s role in the enforcement and the interpretation of the FCRA, followed by an FTC Staff Summary of Interpretations of the FCRA in a section-by-section format.  While intended primarily to aid the CFPB as it takes over many of the interpretive functions under the FCRA as of July 21, 2011, the report is also a useful summary of the law for those employers who want to learn more about the FCRA.