Employers who perform background checks on employees and prospective employees should be aware of the recent changes to the Fair Credit Reporting Act (“FCRA”). Under the FCRA, employers must follow certain procedures when they hire an outside third party, known as a “consumer reporting agency,” to obtain consumer reports or investigative consumer reports on employees and prospective employees for “employment purposes” such as hiring or termination. These reports can include credit checks, employment history, motor vehicle records, and criminal backgrounds among others.
While the FCRA has regulated employers for quite some time now, the Federal Trade Commission is no longer its chief enforcer. Since the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the newly created Consumer Financial Protection Bureau (“CFPB”) has assumed responsibility over the interpretation and enforcement of the FCRA.
As part of this change, the CFPB has issued updated FCRA notices/forms that employers must use, effective as of January 1, 2013, when they hire third parties to conduct background checks on employees and prospective employees. These notices are available as Appendices K, M, and N of Title 12 Code of Federal Regulations Part 1022. While the substances of these new forms are not different from the old forms, employers still must use these new forms to ensure they are in compliance with the FCRA. The changed forms include:
Summary of Consumer Rights: Employers must provide this form to applicants and employees in a wide variety of situations. Common situations include when, based on information found in the consumer reports, an employer decides not to hire an applicant or decides to terminate and/or discipline an employee. The new form can be found here.
- Notice of Furnisher Responsibilities: Consumer reporting agencies are required to provide this notice to their employer clients. The new form can be found here.
- Notice of User Responsibilities: Consumer reporting agencies must provide this notice to certain furnishers of information in certain situations. The new form can be found here.
PRACTICAL COUNSEL: Although the CFPB’s forms are not substantively different from the old forms, employers must use the new forms to ensure they are fully compliant with the FCRA. Failure to comply with the FCRA can result in state or federal enforcement actions, private law suits, penalties, and—if willfully done—criminal prosecution. Employers should also be aware that compliance with FCRA does not relieve them of their responsibility to comply with state laws governing these issues that may or may not provide for additional requirements and restrictions. In sum, when employers use third parties to perform background checks form does take precedence over substance.