Amendment to Fair Credit Reporting Act—New Federal Law Requires Credit Score Disclosure When Score Used in Taking Adverse Employment Action
Beginning July 21, 2011, whenever an employer takes an “adverse action” against an employee or employee applicant in whole or in part based on a “credit score” obtained from a consumer reporting agency or other third party (including in a report from background check or employment screening company that obtains the credit score from a credit bureau), that employer must provide an “adverse action notice” to the employee or applicant containing not only the disclosures currently required under the federal Fair Credit Reporting Act (“FCRA”), but also the credit score itself and certain other information relating to the score, including up to four key adverse factors in the score (plus a fifth if the number of inquiries into the credit file of the employee/applicant is a key adverse factor). Currently (prior to July 21, 2011) the adverse action notice must include a statement that a consumer report was used in the decision, the identity and contact information of the consumer reporting agency, and certain other information. The new requirements are mandated by Section 1100F of the Dodd–Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”), signed into law on July 21, 2010, which (among many other things) amends the FCRA. While many companies obtain background checks on new hires, often from employment screening companies that obtain consumer reports (employment reports) from a consumer reporting agency, the majority of companies do not receive a credit score in the report. However a number of employers do obtain a credit score as part of the process.¹ If your company uses, or is considering using, credit scores in connection with screening employee applicants or making decisions regarding current employees, you should be prepared to comply with the new credit disclosure requirements on July 21, 2011. For further information, including regarding the timing and content of FCRA adverse action notices, please contact Bruce Richards (678-336-7146), whose areas of practice include consumer reporting, equal credit, e-payments, and consumer data protection. [Note that the “credit score disclosure” requirement under Dodd-Frank applies across the board to all FCRA adverse actions, not only in the employment context, but any context where a credit score is used to take an adverse action against a consumer (e.g., credit or insurance). The credit score disclosure requirement applies as well where, based in whole or in part on a credit score obtained from a consumer reporting agency, a creditor (i) approves of credit applied for by a credit applicant, but the terms approved are materially less favorable than the most favorable material terms available to a substantial portion of the creditor’s applicants for the same product, or (ii) increases the interest rate on a consumer’s existing credit account.] ¹Sometimes employers engage in such a practice where the job under consideration involves employee access to the employer’s funds or other liquid assets where a low credit score could indicate an increased temptation of the applicant to misappropriate such assets. Bruce Richards is a business lawyer with an extensive corporate, transactional and regulatory background. Having served as general counsel and an executive officer of four publicly traded companies, including Atlanta-based Equifax, he excels at evaluating, managing and advising with respect to the broad spectrum of legal challenges facing his clients’ businesses, and advising boards of directors and board committees with respect to strategic transactions and corporate governance matters.