FTC Issues Final Rules Adopting Changes to Fair Credit Reporting Act on the Use of Background Reports for Employment Purposes

The federal Fair Credit Reporting Act (FCRA), was enacted on October 26, 1970. Since then it has been amended many times, usually expanding its scope, especially as it applies to employment reports. The most recent amendment, entitled the Fair and Accurate Credit Transactions Act (FACTA), was passed in November 2003. The Federal Trade Commission (FTC) has released its final rules implementing the changes, which took effect on January 31, 2005.

It is critical to remember that, despite it name, the FCRA is not limited to credit reports. It applies to reports prepared for a "user" on a "consumer" by a "consumer reporting agency." By definition, an employer is a user, a job applicant is a consumer, and Phenix is a consumer reporting agency (CRA).

Addressed below are topics of the amendment affecting Phenix clients. Although much has not changed, Congress clarified and re-emphasized those requirements it considers important to users of background reports for employment purposes.

Obligations of Users

• Adverse Actions - Adverse actions are defined, along with the details of the steps required of the user, emphasizing proper notification to the consumer.
  
  
• Certifications - The user must certify to the CRA that: 1) consumer reports will be ordered only for permissible purposes; 2) a clear and conspicuous disclosure was given to the consumer before obtaining a report; 3) the consumer provided his or her prior written authorization for the report; 4) information obtained will not be used in violation of any federal or state equal opportunity law; 5) before an adverse action is taken, the consumer will receive a copy of the report and a summary of the consumer's rights; and 6) proper procedures must be in place for disposing of information obtained in consumer reports.
  
  
• Investigative Consumer Reports - Additional disclosure rules are required, primarily in the area of informing the consumer specifically what information (the nature and scope of the report) the user is asking the CRA to provide.
  
  
• Investigation of Employee Wrong-Doing - In an important change, employers can now investigate employee wrong-doing, such as theft or on-the-job harassment, without the notification and prior authorization process involving the employee. However, all requirements of proper disclosure must be followed if an adverse action results from the investigation.

A New Summary of Your Rights Under the Fair Credit Reporting Act

This document, provided to consumers if an adverse action is taken, now addresses identity theft, active duty military personnel, credit scores and pre-screening. The information in the summary regarding employment reports has not changed, but the new version must be used for adverse actions taken after January 31, 2005.

You may find more details about these changes, and download the complete text of the FCRA at www.ftc.gov/credit.

The FTC explanation of the changes summarized above, entitled Notice to Users of Consumer Reports: Obligations of Users Under the FCRA may be read and downloaded by clicking here.

The approved text of the consumer's Summary of Your Rights Under the Fair Credit Reporting Act may be read and downloaded by clicking here.

Both of the above FTC documents are presented as PDF files. If you do not have a PDF reader, you may download a free version of Adobe Acrobat Reader here.

If you wish any additional information, do not hesitate to contact your Phenix Customer Service Representative.