Earlier this month, the Consumer Finance Protection Bureau (CFPB) issued updated model disclosure forms required under the federal Fair Credit Reporting Act (FCRA). The updated “Summary of Your Rights Under the Fair Credit Reporting Act” form, which became effective on September 21, 2018, is one of many notices employers must provide under the FCRA when using a consumer reporting agency (CRA) to run a background check during the hiring process. The revised form is located here along with a revised Summary of Consumer Identity Theft Rights form.
Changes to the Form
In May 2018, Congress passed the Economic Growth, Regulatory Relief and Consumer Protection Act (the “Act”). The Act adds new language to the Summary of Your Rights form which explains that consumers may obtain a “security freeze” free of cost. A security freeze allows a consumer to freeze their account so that a CRA may not release information on a credit report without the consumer’s authorization. The new form language also cautions applicants that using the security freeze may delay, interfere or prohibit timely approval of an application. As an alternative to the security freeze, consumers also have the right to place an initial or extended fraud alert on their credit file free of cost. The new form extends the time frame of a fraud alert from the previously enacted 90 days to a full year. For consumers that are victims of identity theft, the fraud alert can be extended up to 7 years.
Although the updated forms are now effective, to help mitigate the impact of the changes on users of the existing model forms, the CFPB’s interim rule will allow continued use of the forms last updated in 2012, so long as a separate page that contains the newly required information (i.e., the security freeze and fraud coverage rights) is provided at the same time./
Complying with the FCRA
The FCRA regulates the collection and distribution of consumer credit reports, a common component of an employment background check. Many employers that use consumer reports during the application process are already familiar with the FCRA’s stringent notice and disclosure requirements and the pitfalls that come with violations. FCRA class action lawsuits have impacted numerous organizations in various industries for allegedly failing to comply with notice and disclosure requirements and have resulted in million-dollar settlements.
Many employers may not know, however, that state-specific consumer reporting rules, known as “mini-FCRAs,” often impose overlapping requirements as the federal FCRA. Employers in states such as California, Colorado, Illinois, New York and Massachusetts must comply with both the FCRA and the state mini-FCRAs and background check laws. To complicate matters further, local municipalities have enacted background check laws that apply in addition to federal and mini-FCRAs. For example, New York City employers must also comply with the Fair Chance Act regarding criminal backgrounds checks and the Stop Credit Discrimination in Employment Act, which prohibits most employers from using consumer credit history in making an employment decision.
What Should Employers Do?
Employers that use consumer reports during the hiring process should ensure that they are providing the most up-to-date FCRA forms to applicants. Additionally, before instituting any background check process, employers should consult with their counsel to ensure their process is compliant with all state and local laws.
/ The CFPB is soliciting comment on the interim final rule’s amendments to inform possible further revisions to the model forms that the Bureau may consider in the future.