The Fair Credit Reporting Act (FCRA), the federal statute that places limits on an employer’s ability to use background checks on employees and potential hires, will soon add a new requirement. Employers’ use of background checks, and credit history checks in particular, has come under scrutiny. The Equal Employment Opportunity Commission has pursued disparate impact claims against employers that rely on credit checks as part of the employment process on the theory that the recent economic downtown has impacted minorities and women more severely, and as a result, employer screening based on credit history has a disparate impact on minorities and women. Several states have placed limits on the use of background checks and there was talk in Congress about similar restrictions.
In such an environment, it should not be a surprise that Congress amended the FCRA with respect to credit scores. The amendment was part of the Dodd-Frank Wall Street Reform and Consumer Protection Act and received little fanfare. The change in the FCRA affects the disclosure that an employer must make if it takes an adverse action against an employee or potential employee based in whole or in part on the results of a “consumer report.” A consumer report includes a variety of background checks, including checks of credit, driving history, and criminal records. When an employer takes adverse action against an employee or prospective employee based in whole or in part on the results of a consumer report, the employer must provide the individual with oral, written or electronic notice of:
(1) The adverse action;
(2) The contact information for the consumer reporting agency that provided the report to the employer;
(3) The fact that the consumer reporting agency did not make the decision and is unable to provide the individual with the specific reasons for the decision;
(4) The individual’s right to obtain a free copy of the consumer report in question; and
(5) The individual’s right to dispute with the consumer reporting agency the information in the consumer report.
Beginning July 21, if an employer takes an adverse action against an employee or prospective employee based on the individual’s numerical credit score, in addition to the disclosures required above, the employer must provide the individual with additional written or electronic notice of:
(1) The numerical credit score the employer used when taking the adverse action;
(2) The range of possible credit scores under the credit scoring model used;
(3) The date on which the credit score was created;
(4) The name of the person or entity that provided the credit score or the credit file used to create the credit score; and
(5) The key factors, listed in order of importance, which adversely affected the consumer’s credit score in the credit score model used.
These additional disclosure requirements only apply if the employer makes the adverse employment decision based in whole or in part on the individual’s numerical credit score.
Whether an applicant’s or employee’s numerical credit score is a relevant factor in determining the individual’s qualification for employment or continued employment will depend on a variety of factors. If an employer chooses to rely on such data when taking adverse action after July 21, it should make sure to provide the additional disclosures mandated by the amended Fair Credit Reporting Act.