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Using Consumer Reports:

What Employers Need To Know

Credit

• 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?

A

• 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 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?

s an employer, you may use consumer reports 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 employment purposes.
Facts for Business

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 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 aware that:

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 (FTC). 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 must include:

• the name, address, and phone number

of the CRA that supplied the report;
Facts for Business

• 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 regulations.

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.

In Practice...

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 your decision.

You are considering a number of your longterm 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 preadverse action disclosure. The employee

also must receive an adverse action notice

once you have selected another individual

for the job.
Federal Trade Commission

Bureau of Consumer Protection

Office of Consumer and Business Education

March 1999

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Facts for Business

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 civil penalties.

For More Information

For your copy of the FCRA, contact the FTC.

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-FTCHELP (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.

Your Opportunity to Comment

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 to

www.sba.gov/ombudsman.

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 notice.

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.

Non-compliance

There are legal consequences for employers

who fail to get an applicant’s permission before

requesting a consumer report or who fail to