Using Consumer Reports:
What Employers Need to Know
Your advertisement for cashiers nets 100 applications. You
want credit reports on each applicant. You plan to eliminate those with poor credit
histories. What are your obligations?
You are considering a number of your long-term employees for major
promotions. Can you check their credit reports to ensure that only financially responsible
individuals are considered?
A job candidate has authorized you to obtain a pre-employment credit report. The applicant has a
poor credit history. Although the credit history is considered a negative factor, it's the
applicant's lack of relevant experience that's more important to you. You turn down the
application. What procedures must you follow?
As an employer, you may use consumer reports in your pre-employment screening report when you hire new
employees and when you evaluate employees for promotion, reassignment, and retention
as long as you comply with the Fair Credit Reporting Act (FCRA). Sections 604, 606,
and 615 of the FCRA spell out your responsibilities when using consumer reports for
The FCRA is designed primarily to protect the privacy of consumer report information
and to guarantee that the information supplied by consumer reporting agencies is as
accurate as possible. Amendments to the FCRA which went into effect September 30,
1997 significantly increase the legal obligations of employers who use consumer
reports. Congress expanded employer responsibilities because of concern that inaccurate or
incomplete consumer reports could cause applicants to be denied jobs or cause employees to
be denied promotions unjustly. The amendments ensure (1) that individuals are aware that
consumer reports may be used for employment purposes and agree to such use, and (2) that
individuals are notified promptly if information in a consumer report may result in a
negative employment decision.
What is a Consumer Report?
A consumer report contains information about your personal and credit characteristics,
character, general reputation, and lifestyle. To be covered by the FCRA, a report must be
prepared by a consumer reporting agency (CRA) a business that assembles such
reports for other businesses.
Employers often do employment background checks on applicants and get consumer reports during
their employment. Some employers only want an applicant's or employee's credit payment
records; others want driving records and criminal histories. For sensitive positions, it's
not unusual for employers to order investigative consumer reports reports that
include interviews with an applicant's or employee's friends, neighbors, and associates.
All of these types of reports are consumer reports if they are obtained from a CRA.
Applicants are often asked to give references. Whether verifying such references is
covered by the FCRA depends on who does the verification. A reference verified by the
employer is not covered by the Act; a reference verified by an employment or reference
checking agency (or other CRA) is covered. Section 603(o) provides special procedures for
reference checking; otherwise, checking references may constitute an investigative
consumer report subject to additional FCRA requirements.
Key Provisions of the FCRA Amendments
Written Notice and Authorization
Before you can get a consumer report for employment purposes, you must notify the
individual in writing in a document consisting solely of this notice that a
report may be used. You also must get the person's written authorization before you ask a
CRA for 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
Step 1: Before you take the adverse action,
you must give the individual a pre-adverse action disclosure that
includes a copy of the individual's consumer report and a copy of "A Summary of Your
Rights Under the Fair Credit Reporting Act" a document prescribed by the
Federal Trade Commission. The CRA that furnishes the individual's report will give you the
summary of consumer rights.
Step 2: After you've taken an adverse
action, you must give the individual notice orally, in writing, or electronically
that the action has been taken in an adverse action notice. It
- 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
Before giving you an individual's consumer report, the CRA will require you to certify
that you are in compliance with the FCRA and that you will not misuse any information in
the report in violation of federal or state equal employment opportunity laws or
In 1998, Congress amended the FCRA to provide special procedures for mail, telephone,
or electronic employment applications in the trucking industry. Employers do not need to
make written disclosures and obtain written permission in the case of applicants who will
be subject to state or federal regulation as truckers. Finally, no pre-adverse action
disclosure or Section 615(a) disclosure is required. Instead, the employer must, within
three days of the decision, provide an oral, written, or electronic adverse action
disclosure consisting of: (1) a statement that an adverse action has been taken based on a
consumer report; (2) the name, address, and telephone number of the CRA; (3) a statement
that the CRA did not make the decision; and (4) a statement that the consumer may obtain a
copy of the actual report from the employer if he or she provides identification.
- You advertise vacancies for cashiers and receive 100 applications. You want just credit
reports on each applicant because you plan to eliminate those with poor credit histories.
What are your obligations?
You can get credit reports (one type of consumer report ) if you notify each
applicant in writing that a credit report may be requested and if you receive the
applicant's written consent. Before you reject an applicant based on credit report
information, you must make a pre-adverse action disclosure that includes a copy of the
credit report and the summary of consumer rights under the FCRA. Once you've rejected an
applicant, you must provide an adverse action notice if credit report information affected
- You are considering a number of your long-term employees for a major promotion. You want
to check their consumer reports to ensure that only responsible individuals are considered
for the position. What are your obligations?
You cannot get consumer reports unless the employees have been notified that reports
may be obtained and have given their written permission. If the employees gave you written
permission in the past, you need only make sure that the employees receive or have
received a "separate document" notice that reports may be obtained during the
course of their employment no more notice or permission is required. If your
employees have not received notice and given you permission, you must notify the employees
and get their written permission before you get their reports.
In each case where information in the report influences your decision to deny
promotion, you must provide the employee with a pre-adverse action disclosure.
The employee also must receive an adverse action notice once you have
selected another individual for the job.
- A job applicant gives you the okay to get a consumer report. Although the credit history
is poor and that's a negative factor, the applicant's lack of relevant experience carries
more weight in your decision not to hire. What's your responsibility?
In any case where information in a consumer report is a factor in your decision (even if the report information is not a major consideration) you must follow the
procedures mandated by the FCRA. In this case, you would be required to provide the
applicant a pre-adverse action disclosure before you reject his or her application. When
you formally reject the applicant, you would be required to provide an adverse action
- The applicants for a sensitive financial position have authorized you to obtain credit
reports. You reject one applicant, whose credit report shows a debt load that may be too
high for the proposed salary, even though the report shows a good repayment history. You
turn down another, whose credit report shows only one credit account, because you want
someone who has shown more financial responsibility. Are you obliged to provide any
notices to these applicants?
Both applicants are entitled to a pre-adverse action disclosure and an adverse action
notice. If any information in the credit report influences an adverse decision, the
applicant is entitled to the notices, even when the information isn't negative.
Sample Employment Adverse Action Letter
Sample Employment Pre Adverse Action Letter
A Summary of Your Rights Under the Fair Credit Reporting Act
There are legal consequences for employers who fail to get an applicants permission
before requesting a consumer report or who fail to provide pre-adverse action disclosures
and adverse action notices to unsuccessful job applicants. The FCRA allows individuals to
sue employers for damages in federal court. A person who successfully sues is entitled to
recover court costs and reasonable legal fees. The law also allows individuals to seek
punitive damages for deliberate violations. In addition, the Federal Trade Commission,
other federal agencies, and the states may sue employers for noncompliance and obtain
The National Small Business Ombudsman and 10 Regional
Fairness Boards collect comments from small businesses about federal
compliance and enforcement activities. Each year, the Ombudsman evaluates
the conduct of these activities and rates each agency’s responsiveness to
small businesses. Small businesses can comment to the Ombudsman without fear
of reprisal. To comment, call toll-free 1-888-REGFAIR (1-888-734-3247) or go
For More Information
|The FTC works for the consumer to
prevent fraudulent, deceptive and unfair business practices in the
marketplace and to provide information to help consumers spot, stop and
avoid them. To file a complaint or to get free information
on consumer issues, visit www.ftc.gov or
call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261. The
FTC enters Internet, telemarketing, identity theft and other fraud-related
complaints into Consumer Sentinel, a
secure, online database available to hundreds of civil and criminal law
enforcement agencies in the U.S. and abroad.
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