Using Consumer Credit Reports

Using Consumer Credit Reports

What employers should look for

Employer Questions:

You posted an advertisement to fill a position within your company and you have over a hundred resumes to sift through. You plan to set aside anyone with a poor credit history. What are your obligations as an employer?

You are making major changes and considering major promotions for some of your long term employees and you wonder if you can check their credit history to ensure that only financially responsible candidates are considered for promotion.

You received authorization from an applicant to run an employment credit report. The applicant has a bad credit history, but even though the credit history is a negative factor, the applicant’s lack of needed experience is a more important factor. What procedures must be followed when turning down the applicant?

Answers:

Employers are allowed to use consumer reports during their pre employment screening process as well as when current employees are evaluated for promotion, reassignment & retention as long as they comply with the Fair Credit Reporting Act (FCRA). Sections 604, 606, and 615 of the FCRA lines out the responsibilities employers have when using consumer reports.

The FCRA was designed to protect the privacy of consumer report information & to guarantee that credit reporting agencies report the most accurate information possible. Amendments to the FCRA – that went into effect September 30, 1997 – significantly increased the employer responsibilities for those using consumer reports. Due to the concern that inaccurate or incomplete consumer reports could lead to candidates being denied jobs or promotions unjustly, congress expanded the employer’s responsibilities. The amendments help ensure (1) that employees or applicants are aware that the employer may use consumer reports for employment purposes and agree to the use, and (2) that employees or applicants would be notified immediately if information on their consumer report may result in a negative decision.

What is a Consumer Credit Report?

Consumer credit reports contain information about a person’s personal as well as credit characteristics, character, lifestyle and general reputation. For a consumer credit report to be covered by the FCRA, that report must be run through a consumer reporting agency (CRA) – a company that provides these reports to other businesses such as AAA Credit Screening Services.

Employers often conduct background checks and obtain credit reports during an employee’s tenure. Some employers require credit reports, others want driving records (MVR) as well as criminal records. Sensitive positions may require additional reports called investigative consumer reports that would include interviews with an employee or applicant’s friends, family, neighbors, & associates. These reports will be considered consumer reports only if obtained by a CRA.

Employers often as applicants for references and whether or not reference checks are covered by the FCRA depends on who performs the task. Reference checks by the employer are not covered by the Act, however, a reference check performed by and employment or reference checking agency (or other CRA) is covered. Section 603(o) outlines prodecudres for reference checking.

Key Provisions of the FCRA Amendments

Written Notice and Authorization

Employers that want to obtain consumer reports for employment background check purposes must notify the individual in writing using a document that consist solely of that notice, notifying them that consumer reports may be used when considering them for employment. The applicant’s permission must be obtained before you can ask a CRA to run the report. (Special procedures apply to the trucking industry)

Adverse Action Procedures

If you rely on a consumer report for an "adverse action" - denying a job application, reassigning or terminating an employee, or denying a promotion — be aware that:

1. Before adverse action proceedings, the individual must be provided with a pre-adverse action disclosure including a copy of the consumer report used and a copy of "A Summary of You Rights Under the Fair Credit Reporting Act" which is a document prescribed by the FRC (Federal Trade Commission. This can be obtained from the CRA that provided the consumer report.





2. After an adverse action has been taken, the individual must be given notice, either orally, in writing, or electronically – that such an action has been taken using an adverse action notice.
   
   It must Include:
   

   • the name, address, and phone number of the CRA that supplied the report;

   • a statement that the CRA that supplied the report did not make the decision to take the adverse action and cannot give specific reasons for it; and

   • a notice of the individual's right to dispute the accuracy or completeness of any information the agency furnished, and his or her right to an additional free consumer report from the agency upon request within 60 days.

Certifications to Consumer Reporting Agencies

Credit reporting agencies will require employers to certify that they are in compliance with the FCRA and that they will not misuse any information in the reports provided in violation of federal or state equal employment opportunity laws or regulations before they will be allowed to receive consumer reports.

Congress amended the FCRA in 1998 to include special procedures for mail, telephone, or electronic employment applications for the trucking industry. Employers do not need to make written disclosures or obtain written permission when it comes to applicants that will be subject to state or federal trucker regulations. No pre-adverse action disclosures or Section 615(a) disclosure is required. Employers must instead provide an oral, written or electronic adverse action within 3 days of the decision. The disclosure must consist of (1) a statement notifying the individual that an adverse action has been taken based on the consumer report; (2) the CRA that provided the report’s name, address and phone number (3) a statement confirming that the CRA was not a part of the decision making process; and (4) a notification that the individual may request a copy of the consumer reports from the employer or CRA if proper identification is provided.

In Practice...

• You posted an advertisement to fill a position within your company and you have over a hundred resumes to sift through. You plan to set aside anyone with a poor credit history. What are your obligations as an employer?

  
  
  

  Employers can obtain credit reports (one type of consumer report) if the candidate has been notified that such a report may be used when considering them for a position or promotion and the candidate has provided their written consent for the report to be run. Before rejecting candidates based on information within the consumer report, the employer must make a pre-adverse action disclosure including a copy of the credit report and a “Summary of consumer rights” under the FCRA. Once the candidate has been rejected, the employer must provide an adverse action notice if the credit report affected the final decision.





• You are making major changes and considering major promotions for some of your long term employees and you wonder if you can check their credit history to ensure that only financially responsible candidates are considered for promotion. What are your obligations?

  
  
  

  Consumer reports may not be obtained if the employees have not been notified and provided written permission that the reports can be run. If an employer has received written permission from the employee in the past, the employer needs to make sure that the employee received a separate document stating that future consumer reports may be obtained during their tenure. No further notice or permissions are required. If this has not been done, notifications need to be provided and permission need to be received before you can obtain their reports.
  
  In each case where information on the consumer report influenced your decision to deny a promotion, the employee needs to be provided with a pre-adverse action disclosure. The employer also needs to provide the employee with an adverse action notice once another individual has been selected for the position.





• You received authorization from an applicant to run an employment credit report. The applicant has a bad credit history, but even though the credit history is a negative factor, the applicant’s lack of needed experience is a more important factor. What procedures must be followed when turning down the applicant?

  
  
  

  Any time a consumer report plays a part in the decision, even if it is not the most important point, the FCRA mandated procedures must be followed. In the above-mentioned scenario, the employer would be required to provide the applicant with a pre-adverse action disclosure before the application is rejected. Once the applicant has officially been rejected for the position, the employer is required to provide an adverse action notice.





• An employer obtained credit reports on candidates for a sensitive financial position. One candidate has a debt load that may be too high for the position’s proposed salary, even though they have a good payment history. Another candidate has a credit history with only one credit account on it, and the employer wants someone with a longer history to show more responsibility. Are employers obligated to provide notices to these applicants?

  
  
  

  Both of the above-mentioned candidates are entitled to pre-adverse action disclosures and an adverse action notice. Any time information on the credit report influenced the employer’s decision that adversely affects the candidate, the candidate is entitled to these notices, even if the information on the report is not negative.

Non-compliance

Employers can suffer legal consequences if they fail to obtain the candidate’s permission before running consumer reports or who fail to follow adverse action notice proceedings. The FCRA allows individuals to sue for damages in federal court. Candidates who successfully sue the employers may be able to recover court costs and legal fees. Candidates can also seek punitive damages for deliberate violations. The FTC (Federal Trade Commission) and other agencies, including states may sue employers for non-compliance and may be able to obtain civil penalties.