The Consumer Financial Protection Bureau (CFPB) recently issued a legal Advisory in early July 2022, intending to protect the privacy rights of individuals subject to background checks by third-party consumer reporting agencies (CRAs) under the federal Fair Credit Reporting Act (FCRA).  The Advisory also seeks to remind users (e.g., employers) of their obligations under FCRA.

FCRA was initially enacted in 1970, and then significantly amended in 1996, resulting in the technical process employers must follow today when seeking and relying upon information received from a CRA.  For employers, the process starts with, whether the company has a “permissible purpose” for requesting the background check from the CRA.  The CFPB Advisory re-states a well-known FCRA principle: a permissible purpose to obtain a background check relates to credit, employment, and insurance.”  (FCRA Section 604, “Permissible purposes of consumer reports.”)

This legal advisory does not really change the “strict technical compliance” rules under FCRA for companies conducting post-offer background checks for applicants using third-party CRAs.  Nor do the technical rules change for promotions, which also typically fall under an “employment purpose.”  An employer deciding out of curiosity (with no employment purpose) to run a credit check on someone, for example, would not have a “permissible” purpose.

Because the CFPB’s mission is to protect consumer privacy, the Advisory reminds CRAs they cannot provide reports to anyone including an employer that does not have a “permissible” purpose.  The CFPB, for example, wants CRAs to use in certain instances, stronger name-matching techniques to avoid potential violations of Section 604.

To add strength to its Advisory, the CFPB reminds us there is potential criminal liability for obtaining a background check report under false pretenses or providing a background report to an unauthorized individual. There is potential civil liability under FCRA as well.

Key Takeaways for Employers

  • Employers should understand processes, practices, and agreements they have with CRA vendors given the CFPB’s advisory.
  • There are a host of other laws to consider in navigating the background checks process: from state fair credit reporting laws, credit laws, ban the box laws, criminal considerations, and more.
  • FCRA and CFPB’s advisories can impact all types of background checks by CRAs, not just “credit” checks.

Please speak with the Jackson Lewis attorney you regularly work with if you have any questions about the CFPB Advisory or background checks.

Special thanks to Sean King, a Summer Law Clerk for his assistance with this blog.

 

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Photo of Richard I. Greenberg Richard I. Greenberg

Richard Greenberg, a Principal in New York City office of Jackson Lewis P.C., is admitted to the bar of the State of New York and the Federal District Court for the Southern District of New York. Mr. Greenberg graduated from Cornell University’s…

Richard Greenberg, a Principal in New York City office of Jackson Lewis P.C., is admitted to the bar of the State of New York and the Federal District Court for the Southern District of New York. Mr. Greenberg graduated from Cornell University’s School of Industrial and Labor Relations in 1992 and earned a Juris Doctor degree from Brooklyn Law School in 1995.

He advises both unionized and union-free clients on a full-range of labor and employee relations matters. With respect to traditional labor matters, Mr. Greenberg represents clients in collective bargaining negotiations, labor disputes, grievances and arbitrations, proceedings before the National Labor Relations Board, and in state and federal court. Mr. Greenberg also advises clients on the legal aspects of remaining union-free. With respect to employee relations matters, Mr. Greenberg has extensive experience assisting clients in numerous industries with the development and maintenance of personnel policies and personnel infrastructures. In this regard, Mr. Greenberg often works on these issues with clients as business needs and culture change as a result of business transactions, such as mergers and acquisitions.

Mr. Greenberg regularly advises clients on compliance with the myriad of federal and state employment laws, including the FMLA, FLSA, ADA, ADEA and WARN, as well as new legal developments impacting labor and employment policies and practices.