The Federal Trade Commission (FTC) has issued new guidance to help background screening companies comply with the Fair Credit Reporting Act (FCRA) when conducting background checks on current or prospective employees. The new guidance, issued May 10, 2016, is aimed specifically at background-screening companies—consumer reporting agencies subject to the FCRA—but the guidance will also be of interest to any employer that engages a third party to conduct background checks on employees or applicants.

The FCRA imposes stringent requirements on employers and others who use consumer reports in making employment, credit, and other decisions. The new guidance highlights the fact that background screening companies are subject to the FCRA in many of the same ways as the "Big Three" credit bureaus.

The FTC's new publication provides five very high-level points, just enough to alert companies to some of the thorny issues they are likely to face when complying with the FCRA.

  • The guidance repeats the FCRA requirement that screening companies must "follow reasonable procedures to assure accuracy." It does not, however, provide detail on what constitutes reasonable procedures or how to practically implement them.

  • The guidance states that background screening companies must secure certifications from their clients that the employer notified the applicant and received the applicant's written permission to obtain a background report, the employer will comply with the FRCA's requirements, and the employer won't discriminate against the applicant or employee or otherwise misuse the information in violation of any state or federal law. The guidance does not, however, explain what obligations, if any, background screening companies have to verify that their customers are keeping these promises. (The Consumer Financial Protection Bureau (CFPB), which also enforces the FCRA, has issued guidance stating that it is generally insufficient to rely on certifications alone.)

  • The guidance states that background screening companies must educate their clients on the FCRA by providing them with certain publications issued by the CFPB and FTC.

  • The guidance confirms that the FCRA gives consumers rights that background screening companies must honor. For instance, consumers have a right to view their entire file upon request and to insist that the companies investigate disputes they may submit. Alleged violations of these rights often lead to costly and time-consuming litigation for consumer reporting agencies and the companies that furnish information to them.

  • The guidance reminds background screening companies that, if they incorporate public data into the reports they provide, they must either notify the subject of the report that public information is being used or adhere to "strict procedures" to ensure that the public information is accurate and up to date.

The FTC has published other guidance on employers' duties in complying with the FCRA, including: Background Checks: What Employers Need to Know; Using Consumer Reports: What Employers Need to Know; The Fair Credit Reporting Act and Social Media: What Businesses Should Know; Background Screening Reports and the FCRA: Just Saying You're Not a Consumer Reporting Agency Isn't Enough; Disposing of Consumer Report Information? Rule Tells How; and A Summary of Your Rights Under the Fair Credit Reporting Act. This latest guidance is part of a broader trend of increased FCRA enforcement and supervision activity both by the FTC and the CFPB.

Attorneys in Ballard Spahr’s Labor and Employment and Consumer Financial Services Groups regularly advise employers and consumer reporting agencies regarding FCRA compliance. We will be hosting a webinar on June 8 to discuss these and other FCRA issues that employers and background screening companies face when compiling and using background reports in the employment context. Please click here to register. 


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