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Those of us in a business that deal with opportunities for people—things like employment, housing, or financial benefits like loans or credit—will also hear the term “FCRA compliance.” But what does this mean?
Actually, the FCRA is a pretty long and complex federal law that has been amended many times.1 It was passed to promote the accuracy, fairness and privacy of consumer information that is kept by consumer reporting agencies, and consumers are pretty much everybody—as individuals in the marketplace. Besides being employees, investors, tenants, borrowers, account holders, or utility users, we are also consumers.
Before the FCRA, credit reporting agencies collected a wide range of information about consumers without significant restrictions or oversight, and they sold that information to other businesses.
The lack of oversight permitted sloppy record keeping by the credit bureaus. That engendered many errors, and some falsehoods found their way into the histories of the consumers they were reporting on. Businesses buying these consumer reports used them then, as they do today, to make business decisions that impacted the economic benefits of consumers…decisions like whether or not to extend a home loan, open a checking or credit account or offer employment.
Upon request by our clients, KYC Solutions can provide a copy of the full FCRA that is annotated by the Federal Trade Commission (FTC) and with KYC Solutions’ highlights of the principal features of the act that pertain to employment and tenancy. But let’s take a bird’s view of the act now.
All too often consumers were denied economic opportunities on the basis of faulty consumer reports by an industry that had developed “an elaborate mechanism…for investigating and evaluating the credit worthiness, credit standing, credit capacity, character, and general reputation of consumers…[and t]here is a need…[for] fairness, impartiality, and a respect for the consumer’s right to privacy.”2 (Italics added.)
Consumers generally did not have access to and could not easily challenge their consumer reports even if they learned of errors in their history—until the U.S. Congress recognized this problem and in 1970 passed the FCRA. This law has been amended several times since then to provide refinements and to modernize the initial law.2 It is now codified as 15 U.S.C. § 1681.
One particular part of the FCRA, Section 605, specifies what information must be excluded from an FCRA consumer report:
The time scope limitations shown above effectively permit decision makers to see and consider only the last seven (or ten) years of a consumer’s history. (These are covered from the opposite perspective in our “What Information Can Be Used” section: what we can and do include in consumer reports.)
But the law’s Section 605 also provides exemptions to the time limitations so that relevant derogatory information about a consumer (applicant or incumbent) can be reported and considered by decision makers without regard as to the age of the information:
The FCRA process for consumer reports applies to all employment situations. But the FCRA restricts what information can be reported on consumers (subjects) who earn even a penny under $75,000 per year.
On the other hand, the FCRA does not place a time limit on the age of derogatory records and information that can be included in the reports of consumers who earn or are expected to earn $75,000 per year or more.
It is not hard for employers or property managers to violate FCRA laws, particularly when they just don’t know what is required of them. The following are examples:
Disclosure and authorization form errors. Employers oftentimes include the FCRA disclosure and authorization information in their organization’s application form. But the FCRA specifies that the disclosure and authorization information must be separate from any other document.
Failure to provide applicants with their FCRA Summary of Rights. Each time that an employer or property manager decides to conduct a background check they must provide the subject with the three-page FCRA Summary of Rights.
Using records older than what the FCRA permits. Generally, the permissible scope is seven years back from the date of the application to the date of disposition. For FCRA purposes, disposition date means the date that the outcome of a case was decided4, such as a finding or declaration of guilt. Some records have a ten-year scope or have no time limit.
Making an adverse decision based on an incident with no conviction. This is probably the most serious violation an employer can commit. The FCRA clearly states that only convictions can be reported on a consumer report for employment purposes. There are many dispositions that are forbidden: dismissed, expunged, deferred, pending, sealed, and not prosecuted are among them. And the best way to be sure you know what the disposition was is to review the record in the courthouse. Do not rely on the disposition shown in a database, or through an online check. Even if the find is through a database search, KYC Solutions always determines the actual, final disposition at its source in a courthouse.
Not allowing the subject to review and dispute the findings. The law stipulates that employers or property managers must have a pre-adverse and adverse action process. The subject always has a right to view/review a copy of their report and to identify and correct any inaccuracies. KYC Solutions provides each subject a copy of their report to assure we and our clients remain FCRA compliant.
1 Federal Trade Commission (FTC), annotated version of 15 U.S. Code § 1681 that includes amendments to the FCRA set forth in the Consumer Credit Reporting Reform Act of 1996 (Public Law 104-208), the Omnibus Consolidated Appropriations Act for Fiscal Year 1997, Title II, Subtitle D, Chapter 1), Section 311 of the Intelligence Authorization for Fiscal Year 1998 (Public Law 105-107), the Consumer Reporting Employment Clarification Act of 1998 (Public Law 105-347), Section 506 of the Gramm-Leach-Bliley Act (Public Law 106-102), Sections 358(g) and 505(c) of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act) (Public Law 107-56), the Fair and Accurate Credit Transactions Act of 2003 (FACT Act) (Public Law 108-159), Section 719 of the Financial Services Regulatory Relief Act of 2006 (Public Law 109-351), Section 743 (Div. D, Title VII) of the Consolidated Appropriations Act of 2008 (Public Law 110-161), the Credit and Debit Card Receipt Clarification Act of 2007 (Public Law 110-241), and Sections 205 and 302 of the Credit Card Accountability Responsibility and Disclosure (CARD) Act of 2009 (Public Law 111-24), the Consumer Financial Protection Act of 2010 (CFPA) (Title X of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law 111-203), and the Red Flag Program Clarification Act of 2010 (Public Law 111-203); rev. May 2016.
2 Ibid.
3 Ibid.
4 Disposition is the outcome of a particular civil or criminal case, and the disposition date is the date in which the outcome occurs. For example, the disposition of a shoplifting charge would be a finding of guilty in a trial, or a plea of guilty or nolo contendere before a judge; and the disposition date would be the day that disposition occurred. In our shoplifting example, the shoplifting charge against a consumer whose case was disposed of (i.e., pled guilty) on April 20, 2011 and who applied for work on April 22, 2018 cannot be used in a “hire” decision because it was disposed just two days longer than the seven-year scope, even if the sentencing occurred a month later and within the seven-year period. The FCRA generally permits the use of criminal or civil records that were disposed not earlier than seven years before the date of application.
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