Overview
The Consumer Financial Protection Bureau (CFPB) recently released an updated version of the “A Summary of Your Rights Under the Fair Credit Reporting Act” notice to job applicants and employees required in connection with conducting employment background checks (also known as the Summary of Consumer Rights). Starting on March 20, 2024, employers and consumer reporting agencies (third-party background check vendors) will need to provide the newly revised Summary of Consumer Rights to applicants and employees in connection with background checks to comply with the federal Fair Credit Reporting Act. This article analyzes the updates to the Summary of Consumer Rights and provides recommended next steps employers and consumer reporting agencies should take to be in compliance with the law.
In Depth
THE LAW
The CFPB is an independent bureau within the Federal Reserve System that empowers consumers with the information they need to make financial decisions in the best interests of them and their families. It works in conjunction with the Federal Trade Commission to enforce the Fair Credit Reporting Act (FCRA). The FCRA governs access to consumer credit report records and promotes accuracy, fairness and the privacy of personal information assembled by credit reporting agencies. The FCRA also establishes specific notice requirements for employers seeking to obtain pre-hire and employment background checks.
The FCRA requires, among other things, that employers who use a consumer reporting agency (in other words, a third-party background check vendor) to acquire consumer reports (better known as background check reports) for employment purposes i) provide a standalone written disclosure to the employee or job applicant that the employer may obtain a consumer report for employment purposes, presented clearly and conspicuously, and ii) obtain written consent from the employee or job applicant before obtaining any consumer report. The FCRA also requires the consumer reporting agency to provide a copy of the Summary of Consumer Rights. In addition, employers are required to include the Summary of Consumer Rights with every adverse action notice under the FCRA and the Equal Credit Opportunity Act.
Many states, including but not limited to California, Colorado and New York, have additional notice and disclosure requirements in connection with obtaining background check reports. There is also a patchwork of fair chance laws around the country imposing additional notice and procedural requirements in connection with obtaining information about an individual’s criminal history in connection with an application for employment.
An employer who violates the FCRA, including by failing to provide a compliant Summary of Consumer Rights form, may be investigated by the Federal Trade Commission (FTC). Such an employer may face statutory damages ranging from $100 to $1,000 per violation. In addition, the employer may be liable for actual damages, attorney fees and court costs. In cases of willful violations, punitive damages may be awarded. Lastly, an employee may be able to sue in state or federal court for a violation of their rights under the FCRA.
THE CFPB’S UPDATES TO THE FCRA SUMMARY OF RIGHTS
On March 17, 2023, the CFPB released an updated version of the model “Summary of Consumer Rights,” notice, replacing the October 2018 edition that the majority of employers and background check vendors are currently using. The CFPB’s updates include changes to the contact information for various federal agencies included on the form, including the CFPB, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation and the National Credit Union Administration. The CFPB’s updates also include non-substantive technical corrections, such as updates to formatting. Lastly, the revised Summary of Consumer Rights removes references to financial institutions that are obsolete, such as the Federal Land Banks, Federal Land Bank Associations, Federal Intermediate Credit Banks and Production Credit Associations.
Both the English and Spanish versions of the Summary of Consumer Rights are now available on the CFPB’s website.
COMPLIANCE STRATEGIES AND NEXT STEPS
The final rule enacting this change is set to take effect on April 10, 2023, and employers and consumer reporting agencies will need to begin using the updated form by March 20, 2024. However, employers may want to hold on immediately updating their Summary of Consumer Rights notices at this time and continue to monitor anticipated additional comments and corrections to the Summary of Consumer Rights notice that may be forthcoming.
We recommend that employers conduct a general review of their background check packets, including all required notices and disclosures, to ensure continuing compliance with local, state and federal background check laws. We also recommend reviewing vendor agreements with background check vendors and communicating with them to ensure that they are aware of the change and intend to comply with the revised law by the applicable deadline.
For any questions regarding compliance with applicable background check laws in the states and municipalities where you might hire or employ individuals for your business, please contact your McDermott lawyer.
