On September 12, 2018, the Consumer Financial Protection Bureau (CFPB) issued an interim final rule updating two model disclosure forms to reflect changes made to the Fair Credit Reporting Act (FCRA) by the Economic Growth, Regulatory Relief, and Consumer Protection Act, passed in May 2018. The revisions to the form were made to notify employees of their right to initiate a security freeze. Under the new law, if an employee or other consumer initiates a security freeze, it restricts prospective lenders from accessing their credit reports and prevents others from opening accounts in the consumer’s name.
The FCRA applies to employers who use a consumer reporting agency to obtain a “consumer report,” or background check, on an employee or applicant. A consumer report contains information on an individual’s creditworthiness or credit standing, but also can include more general information about the person’s character, general reputation, personal characteristics, and/or mode of living, including information concerning the person’s criminal history.
Employers are required by the FCRA to provide a “Summary of Consumer Rights” form to an employee or applicant at certain times in connection with obtaining a consumer report for employment purposes. For example, before obtaining a consumer report, an employer must (1) disclose to the employee or applicant that the employer is procuring a consumer report and that it may use information in the report for decisions related to consideration for employment or continued employment, (2) receive written permission from the employee or applicant, and (3) provide the employee or applicant with a Summary of Consumer Rights in the form prescribed by the CFPB.
New model disclosure forms effective immediately
Employers must begin using the new model disclosure forms immediately in connection with their employee and applicant background checks. The revised forms, which became mandatory effective September 21, 2018, include an updated Summary of Your Rights Under the Fair Credit Reporting Act form and a revised Summary of Consumer Identity Theft Rights form. The new summary of rights form is available on the CFPB’s website. Under the FCRA, the summary of rights must be given to an employee or applicant before taking any adverse action, such as rejecting an applicant for employment or deciding to terminate or not promote a current employee, based on a credit report covered by the FCRA. Failure to provide the disclosure form as required when taking action based on a background check can expose employers to potentially significant damages, and even potential class action litigation.
What next steps should employers take?
Employers that use consumer reports for making hiring or other employment decisions should ensure that they are utilizing the most up-to-date FCRA forms. Additionally, before instituting any background check process, employers should consult with their counsel to ensure their process is compliant with all federal and state consumer reporting laws.