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Use of Consumer Reports & Required Authorization
One of the most useful tools available to HR personnel for evaluating job applicants is the
consumer credit report. Credit reporting agencies are constantly acquiring and maintaining
detailed records regarding the financial activities of consumers nationwide. A thorough review
of an applicant's credit report can reveal much about the applicant's background and character.
Because access to credit reports is governed by the Fair Credit Reporting Act (FCRA), great care
must be taken to follow legal requirements which specify that credit information can be used in
an employment situation only with an applicant's full understanding and authorization.
The following steps are required by the FCRA before an applicant's credit report can be examined
by a prospective or current employer:
1. Ask applicant to authorize the procurement of a consumer credit report. The applicant must
give written authorization to procure the report.
The authorization must include a clear and conspicuous written disclosure to the individual that a
credit report will be obtained. This document must consist solely of the disclosure so that the
person clearly understands that a credit report will be obtained. This credit check consent form
can basically state the following:
Based on the requirements of the job for which I am applying, I understand the necessity for and
hereby authorize [employer] to conduct a job related credit check on myself.
2. When the report is requested, the employer must certify to the reporting agency that it has
made the required disclosure and that the information in the report will not be used in violation
of federal or state equal employment opportunity law or regulation.
This disclosure must be clear, conspicuous, and in writing to the applicant before the report is
procured and must be a stand alone document stating that it is a disclosure that the consumer
report may be obtained for employment purposes.
3. The credit reporting agency must provide a summary of the applicant's rights to obtain a free
copy of the report and to dispute the completeness of the information in the report.
4. Once the credit report is obtained, if upon review the employer determines that adverse action
may be taken, certain conditions apply. The employer must make a pre-adverse action disclosure
that includes a copy of the consumer report and a copy of "A Summary of Your Rights Under the
Fair Credit Reporting Act." This summary is a document prescribed by the Federal Trade
Commission and the credit reporting agency that furnishes the report should give you the summary
of consumer rights.
5. The employer may contact the applicant to discuss the contents of the credit report because the
applicant has already authorized the employer to obtain the report for employment purposes.
6. Information from the credit report should not be used in violation of federal or state equal
employment opportunity laws or regulations.
7. If an adverse action is taken, the applicant must be given notice (oral, written, electronic)
that the adverse action has been taken. This document is called "Adverse Action Notice" and must
include the following:
The name, address, and phone number of the credit reporting agency that supplied the report;
A statement that the agency that supplied the report did not make the decision to take the adverse
action and cannot give specific reasons for it; and
Notice of the applicant's right to dispute the accuracy or completeness of any information the
agency furnished, and the right to an additional free consumer report from the agency upon
request within 60 days.
If you wish to review a credit "investigative report", i.e. one that reveals information about the
subject's character, general reputation, personal characteristics, or mode of living along with
the financial information, under FCRA, you must inform the applicant or the employee within at
least three (3) days after requesting the report that you plan to obtain an investigative report.
This same three day period would apply to any current employees who have applied for a promotion,
reassignment, or retention. This notice should tell the applicant or employee that he or she has
the right to request, within a reasonable time, a complete and accurate disclosure of the nature
and scope of the investigation. If the applicant or employee requests such a disclosure, you
must reply in writing within five (5) days. If you want to order an investigative report on an
employee who has not applied for a job change, you need not inform the employee.
You must let all applicants know if you have rejected them on the basis of an adverse credit
report. The penalties for violating this law can include actual and punitive damages, plus court
costs and attorney's fees.
Any information obtained from credit checks should be considered highly confidential and sensitive
and should be maintained in a file separate and apart from the employee's personnel file. Such
information should not be shared with potential creditors or used for any purpose other than a
job related purpose.
Though the requirements of disclosure and authorization are firmly fixed by the FCRA, in practice
they are easy to comply with once the appropriate procedures are established. Consumer credit
information is certainly worth reviewing during the application process, even if only to "flesh
out" information acquired during the rest of the application process.
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515 South Kansas Avenue
Topeka, KS 66603-3999
Tel.: 785-233-0593
FAX.: 785-233-8870
gsep@goodellstrattonlaw.com
Copyright 2005 Goodell, Stratton, Edmonds & Palmer, L.L.P.
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