The Fair Credit Reporting Act

The Fair Credit Reporting Act in the Employment Context

The Fair Credit Reporting Act (FCRA) protects consumers from the abusive collection and use of their credit and personal information. The FCRA applies in an employment context when an employer hires a third party to gather and report on information regarding potential employees. It does not apply where the employer gathers information on its own. The FCRA specifically applies to "consumer reports" and "investigative consumer reports."

Consumer reports include reports containing information gathered by a "credit reporting agency" about an applicant's credit, character, general reputation, or personal characteristics. Investigative consumer reports include reports containing information about an applicant's characteristics and character gathered through interviews with the applicant's neighbors, acquaintances, or others. The definition of "credit reporting agency" includes any person who regularly engages in furnishing consumer reports to third parties. Thus, the FCRA covers pre-employment screening activities such as ordering criminal background checks from a third party.

Notice and Disclosure Requirements of the FCRA

To comply with the FCRA, employers must provide applicants with notice that they will order consumer reports. They must also obtain the permission of the applicant to solicit such information. If the consumer report is at least part of the basis for an employer's rejection of an applicant, the employer must provide a copy of the report to the applicant, along with information regarding the applicant's rights under the FCRA. The employer must then, after a reasonable period of time, notify the applicant of the adverse action.

When an employer orders an investigative consumer report, it must provide written notice to the applicant that it will order the report. The employer must also provide the applicant with information regarding his or her rights under the FCRA. If, within a reasonable period of time, the applicant makes a written request to the employer, the employer must provide the applicant with a complete written disclosure of the nature and scope of the investigation that it requested.

Penalties for Noncompliance with the FCRA

Employers that fail to comply with the provisions of the FCRA may be subject to penalties or fines. Persons who willfully fail to comply with the FCRA are liable to the consumer for actual damages (up to $1,000), punitive damages, attorney fees, and costs. If a report is willfully obtained under false pretenses or knowingly without a permissible purpose, the liability for actual damages is not subject to the $1,000 cap. Persons who negligently fail to comply with the FCRA may be liable to the consumer for actual damages and attorney fees and costs.