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Why the Federal Credit Reporting Act matters to your company

Many Utah companies know that it’s easy to run afoul of the various state and federal consumer protection laws. Businesses often see consumer protection laws as things that turn minor, innocent mistakes into serious liabilities. Other Utah companies never deal with consumers, so they believe that the various state and federal laws do not apply to them. However, this ignores a large group of consumers that each business deals with—employees and job applicants.

The Federal Credit Reporting Act (FCRA) addresses when employers can pull their employees’ (or applicants’) credit reports and the purposes for which employers can use those reports. If an employer wants to pull a credit report for an employee or a prospective employee, the employer must give the person notice that the business may use the credit report in its employment decisions. The notice has to be its own document and not part of an employment application. The employer also needs to get the person’s permission to pull the credit report, and then it needs to certify to the credit reporting agency that it notified the person and got the person’s permission to pull the report, complied with the FCRA’s requirements, and that the employer will not discriminate against individuals or misuse the information.

Before the employer rejects a job application, reassigns or terminates an employee, denies a promotion or takes any other adverse employment action based on information in a consumer report, the employer must give the applicant or employee a notice that includes a copy of the consumer report you relied on to make your decision and a copy of A Summary of Your Rights Under the Fair Credit Reporting Act, which is available from the Federal Trade Commission. This requirement is intended to give the person an opportunity to notify the employer if the credit report is inaccurate.

If an employer takes an adverse action based on a credit report, the employer must give the applicant or employee a notice of that fact (orally, in writing or electronically). An adverse action notice tells people about their rights to see information being reported about them and to correct inaccurate information. The notice must include: (1) the name, address and phone number of the consumer reporting company that supplied the report; (2) a statement that the company that supplied the report did not make the decision to take the unfavorable action and can’t give specific reasons for it; and (3) a notice of the person’s right to dispute the accuracy or completeness of any information the consumer reporting company furnished, and to get an additional free report from the company if the person asks for it within 60 days.

Satisfying FCRA

In a recent opinion, the Ninth Circuit considered a question of first impression among the federal courts of appeal: whether a prospective employer satisfies the Fair Credit Reporting Act’s (FCRA’s) disclosure requirements by providing a job applicant with a disclosure that a credit report may be obtained for employment purposes, which simultaneously serves as a liability waiver for the prospective employer and others.

The FCRA states that if a prospective employer wants to obtain a credit report for a prospective employee, the employer must provide a clear and conspicuous written disclosure in a document that consists solely of the disclosure. The employer must also obtain the prospective employee’s authorization to obtain a credit report in writing, and the authorization may be contained in the disclosure.

In Syed v. M-I, LLC, Syed brought a class action suit against M-I for using a disclosure that included a liability waiver for M-I and PreCheck, Inc., a service provider used by M-I. Syed argued the disclosure violated the FCRA’s requirement that the disclosure document consist solely of the disclosure. The Ninth Circuit agreed, holding that the FCRA’s requirement that the document consist solely of the disclosure was unambiguous and the only exception Congress authorized was the inclusion of the prospective employee’s authorization.

Given the FCRA’s unambiguous requirement, the Ninth Circuit held that inclusion of the liability waiver was objectively unreasonable and, therefore, M-I’s non-compliance was willful. This is significant because a willful violation results in a plaintiff’s ability to recover statutory damages (anywhere from $100 to $1,000 per violation), punitive damages, and attorney fees and costs.

Avoiding liability

This opinion shows how easily a seemingly inconsequential practice can create significant liability down the road. Utah companies need to be aware of the FCRA and its requirements to avoid the exact scenario M-I faced in California. With the world shrinking due to technology, Utah companies may have employees or recruit in states included in the Ninth Circuit (Hawaii, California, Oregon, Washington, Idaho, Nevada, Arizona and Montana) and are now subject to the Ninth Circuit’s new interpretation of the FCRA.

Utah companies should contact either their lawyers or any service providers who assist in recruiting or human resources to make sure their forms comply with the Ninth Circuit’s interpretation of the FCRA’s requirements.

Michael C. Barnhill is an attorney in the Salt Lake City office of Michael Best who defends companies in consumer protection cases across the country.