Domino’s Pizza is the latest employer to find themselves in court facing a class action law suit alleging that their background check process violates the Fair Credit Reporting Act (FCRA).

The former employees claim that the company (1) ran background checks on employees without proper authorization; and (2) “systematically” failed to provide employees with copies of their background checks prior to taking adverse employment action against them.

This should not be news to employers. It’s Background Checks 101. So it is not surprising that last week, a Maryland US District Court judge allowed the case to move forward, denying Dominos motion to dismiss. In a long and critical opinion, the Court ruled that the plaintiffs properly alleged that Domino’s violations were “willful.” That means that the claims are putitive and if the Plaintiffs are successful, Domino’s pays an addtitional statutory penalty of $1000 per plaintiff. Ouch.

Sound familiar? It should. The Plaintiffs’ counsel– Minnesota firm Nicols Kastor, PLLP, filed a similar suit in December of last year against banking giant Capitol One. We told you about that case a few weeks ago. Plaintiff Kevin Smith accuses Capital One of violating the FCRA by combining it’s authorization with the company’s standard application. On this claim, Capital One may be liable to all employees and prospective employees who signed Capital One’s standard job application. Double ouch. The lawsuit also alleges that Capital One failed to provide copies of the reports when it used them to take adverse employment actions. Same story, different day.

Employers, these law suits are not going away. Review your adverse action process, and check your forms. If you need a compliant authorization form, you can get one from us.

I just saw a press release from an attorney who is leading a class action in Maryland against Capital One on behalf of those who say that the company violated the Fair Credit Reporting Act (FCRA) for the manner in which they conduct employment background checks.  The suit alleges that the company has harmed their job applicants by:

• Burying the Applicant Release and Disclosure form in the job application
• Not providing the proper Adverse Action notifications and copies of the background check result when an applicant was denied employment
• Using improper formatting requirements on the release (font must be a certain size)

If true, this could lead to either a large settlement or verdict against the company.  If so, you can be sure that the attorneys leading the class will be asking the company “What’s in Their Wallet!”

Whether these allegations are true of not (and it is our hope that they are not), employers should take note that it is far easier to comply with the FCRA than to face this type of action.

P.S. Even though I know the reason why, I still can’t get over law firms sending out press releases on the cases they file.

We’ve been spending a lot of time talking about why shortcuts in the background screening process lead to trouble.  There are a number of consequences of doing so including not finding the things you should have and using bad information to make a hiring decision.  It is the latter, that get everybody into hot water: background screeners and employers alike.

This video, depicts why it is imperative to ensure you are using accurate and up to date information before making a hiring decision.

For those interested in this topic, don’t forget to sign up for our November 17th webinar entitled “Your Applicant’s Have Something to Hide: Why You’re Not Finding It” in which we’ll delve into how to find the most comprehensive and accurate data so that you can hire with confidence.   And as a bonus, you’ll earn HRCI credits for participating.

Effective July 21, 2011, Fair Credit Reporting Act (“FCRA”) adverse-action and risk-based pricing notices must disclose any numerical credit score that contributed to the: (1) adverse action; or (2) extension of credit on terms materially less favorable than those available to a substantial portion of customers.

If you are hearing this for the first time, you aren’t alone.  And here’s why most of you shouldn’t care.

These rules only apply if you are evaluating a credit score.  Remember that employment credit reports (most commonly used on employment background checks) do not include a credit score.

Why are we bothering you with this useless information if it doesn’t affect you?  Well, to let you know if you hear about it, that it most likely doesn’t affect you. If you are reviewing credit scores, you might want to read the information below provided by Seyfarth Shaw labor and employment attorney, Pam Devata.

The FCRA requires a person taking adverse action based in whole or in part on a consumer report to provide an adverse-action notice. Section 1100F of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act) amended Section 615(a) of the FCRA to require users of credit scores to include those scores, and related information, in adverse-action notices provided to consumers. The requirement to disclose credit score information in FCRA adverse-action notices also applies to adverse-action decisions not related to credit.

Consequently, when a user takes any adverse action based in whole or in part on information contained in a consumer report, regardless of the weight of the credit score in the decision, the user must provide the consumer with the following:

*          The credit score;

*          The range of possible credit scores under the model used;

*          All of the key factors that adversely affected the credit score

(not to exceed four factors, unless one factor is the number of inquiries made with respect to the report, in which case the key factors may not exceed five);

*          The date on which the credit score was created; and

*          The name of the person or entity that provided the credit score.

New Risk-Based Pricing Notice Requirements:

Risk-based pricing refers to the practice of setting or adjusting the price and other terms of credit offered or extended to a particular consumer to reflect the risk of nonpayment by that consumer. The FCRA also requires a creditor to provide a risk-based pricing notice to a consumer when the creditor uses a consumer report in connection with a credit application or review of an existing account and, based on the report, grants credit or amends existing credit on terms that are materially less favorable than the most favorable terms obtained by a substantial portion of consumers. The Federal Reserve Board (the

“Board”) and the Federal Trade Commission (“FTC”) recently amended their respective risk-based pricing rules to require disclosure of credit scores and information relating to credit scores in risk-based pricing notices if a credit score of the consumer is used in setting or adjusting the material terms of credit.

The Board’s and the FTC’s rules require the same additional information to be included in a risk-based pricing notice as is required for the adverse-action notices.  In addition, the risk-based pricing notices must include a prescribed statement explaining credit scores that includes a disclosure that the credit score was used in setting the credit terms. For example, a statement such as:

*          “Your credit score is a number that reflects the information in

your credit report.  We used your credit score to set the terms of credit we are offering you.  Your credit score can change, depending on how your credit history changes.”

The Board’s and the FTC’s rules also recommend that the risk-based pricing notices contain optional contact information for the entity that provided the credit score.

Common Questions:

The new rules raise a lot of questions, many of which are addressed in the commentary to the rules, such as: (1) whether credit score disclosures are required when only the credit score of a guarantor, co-signer, surety, or endorser is used (no disclosure is required); (2) whether there are safe-harbor model notices that can be used (yes there are); and (3) what to do when dealing with proprietary scores, three-party financing transactions, more than one applicant, no credit score, and multiple credit scores (the commentary addresses these questions as well).

Two of the more common questions, however, concern “what is a credit score” and “when is a credit score used.”  The commentary makes clear that a score that is not used to predict creditworthiness, such as an insurance score, is not a “credit score” and need not be disclosed.  The commentary also makes clear that “use” occurs at a very low threshold and if the credit score played any role in the decision (for example, if the credit score led the user of the credit score to investigate further and the results of that investigation played a role in the decision), then the credit score was used and must be disclosed.

Many of these same questions can also be answered by reviewing the “Forty Years of Experience with the Fair Credit Reporting Act” report that the FTC issued today and is available at http://www.ftc.gov/os/2011/07/110720fcrareport.pdf.  This report is the most up-to-date FTC guidance on interpreting the FCRA.

EmployeeScreenIQ’s Nick Fishman will be speaking at the Wisconsin State SHRM Conference in Appleton, WI at the Radisson Paper Valley Hotel and Conference Center on October 7, 2010 at 10:30am.

Technology has dramatically changed the way we compete for talent and screen prospective employees, but nothing approaches the impact of social networking.  With the widespread use of Facebook, LinkedIn, and other sites comes a new wave of legal liabilities for both recruiters and screeners. Other emerging technology threats include online diploma fraud, employment mills that manufacture work experience, screen scraping, and more.  Employers need to develop best practices and policies in order to successfully manage Web 2.0 technologies.

Join EmployeeScreenIQ’s Chief Marketing Office,  Nick Fishman for an informative session about how to protect your company in the age of Facebook.  You’ll learn which social networking sites are most popular with recruiters and applicants, and their impact on employment screening and the hiring process.  Attendees will also learn how to develop a social media policy and spot the warning signs of diploma and employment mills.  Finally, you’ll examine other Web 2.0 trends such as screen scraping and instant screening.

A few days ago the Federal Trade Commission released some inaccurate information to consumers regarding criminal background checks.  In an excerpt:

Your credit report has information about where you live, how you pay your bills, whether you’ve been sued or arrested, or have filed for bankruptcy. Credit reporting companies sell the information in your report to employers, creditors, insurers and other businesses that, in turn, use it to evaluate your applications for employment, credit, insurance, or renting a place to live. Employers also are allowed to use credit reports to evaluate an employee for retention, promotion or reassignment. That’s why it’s important to review your credit report periodically and to make sure the information it contains is accurate, complete and up-to-date. Your credit report is available to you for free, once every 12 months from each of the three nationwide credit reporting companies, if you ask for it.

Most of the above information is true, however the part about arrests and what a credit reporting agency even does is misleading.  I believe the author has confused  the difference between a credit reporting agency and a consumer reporting agency.  A credit reporting agency would be a company such as Equifax, Experian and Transunion, companies that are in the business of selling credit reports.  A consumer reporting agency (as defined by the Fair Credit Reporting Act) would be a company such as EmployeeScreenIQ or any full member of the National Association of Professional Background Screeners (NAPBS).  These Consumer Reporting Agencies (CRA’s) would in fact provide the other information the article refers to.  The article however does lend some good advice to consumers but should be amended to provide the distinction described above.  For the full article click here!

Reporting Agency Settles Fair Credit Reporting Act Charges

A nationwide specialty consumer reporting agency that provides casinos credit reports used to assess customers’ eligibility for credit and check cashing will pay $150,000 to settle Federal Trade Commission charges that it violated the Fair Credit Reporting Act (FCRA), FTC officials said today.

Central Credit LLC, according to FTC officials, failed to inform casinos that use its credit reports of their legal obligations under the FCRA – such as providing adverse-action notices to consumers when credit is declined or a check is not cashed. It also allegedly failed to inform companies that furnish information for credit reports of their legal obligation to provide accurate information about consumers.

Central Credit further failed to inform consumers of their rights under FCRA, such as the right to obtain a free annual credit report. Finally, the company did not establish a streamlined process for consumers to request free annual credit reports, including publishing a toll-free number and providing clear instructions about how to request a free report.

More

Two companies have agreed to pay $77,000 in civil penalties for failure to provide pre-adverse and adverse action notification to job applicants and existing employees that were either not hired or terminated due to information contained on their background checks.

See Settlements:

United States v. Quality Terminal Services

United States v. Rail Terminal Services

The Fair Credit Reporting Act (FCRA) requires such notification and the Federal Trade Commission (FTC) is responsible for enforcement.  Under the FCRA, employers are responsible for:

• provide the subject of the background check a copy of their report
• tell the candidate the Consumer Reporting Agency (CRA) that provided the report
• inform the candidate that the CRA did not make the hiring/firing decision
• notify the candidate of their right to a free copy of the report and their ability to dispute the findings

See links below for examples of compliant Pre-Adverse and Adverse Action Letters:

Sample Pre-Adverse Action Letter

Sample Adverse Action Letter

When denying employment based on the results of a background check conducted by a Consumer Reporting Agency (CRA), the Fair Credit Reporting Act stipulates that the employer follow very specific adverse action procedures set forth in sections 604(b) and 615(a).  Two companies were apparently not well versed in these rules and ended up with a combined fine of $77,000.  That’s a big chunk of change – struggling economy or not. 

Our recommendation:  Employers should brush up on their obligations as users of consumer reports and speak with their legal department to ensure compliance. 

For release: 08/11/2009

Two Companies Pay Civil Penalties to Settle FTC Charges; Failed to Give Required Notices to Fired Workers and Rejected Job Applicants

Two companies that fired workers and rejected job applicants based on background checks without informing them of their rights under the Fair Credit Reporting Act (FCRA) have agreed to settle Federal Trade Commission charges that they violated federal law. The settlements require the defendants to pay $77,000 in civil penalties and bar future FCRA violations.

Employers often conduct background checks and seek employees’ and job applicants’ credit records, criminal histories, and other background information from a consumer reporting agency (CRA) such as a credit bureau or background screening company. The FCRA requires that before taking adverse employment actions based on these consumer reports – for example, firing employees or denying job applications – employers must provide the employees or applicants with a copy of the report, identify the CRA that provided it, notify them that the CRA did not make the adverse action decision, and inform them that they have the right to obtain a free copy of the report from the CRA and dispute its accuracy.

According to the FTC’s two complaints, both defendants contracted with a CRA to conduct background checks including criminal record reviews for employees and job applicants, and made hiring and firing decisions based on those background checks. The companies allegedly failed to provide the employees and applicants with pre-adverse action notices and adverse action notices as required by the FCRA.

The settlements require Quality Terminal Services, LLC and Rail Terminal Services, LLC to pay $53,000 and $24,000 in civil penalties, respectively, and to provide the FCRA-required notices in the future. The settlements also contain record-keeping and reporting provisions to allow the FTC to monitor compliance.

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It appears that  HR 3149 was introduced yesterday and Referred to Committee.  HR 3149 is a bill set to amend the Fair Credit Reporting Act (FCRA) to prohibit the use of consumer credit checks against prospective and current employees for the purposes of making adverse employment decisions.  EmployeeScreenIQ and EmployeeScreen University have written about this topic many times in the past.  As an industry, pre-employment credit reports are only suggested to be used when necessary and only for the responsibilities of that particular position.  In fact, the EEOC and FCRA already have provisions that the adverse information can only be used if it fits within the scope of the job. Most background screening programs only impliment this type of check as part of a much broader search.

Section three of the bill provides some exceptions but does not take into account most of them.  We suggest you spend some time reading this bill and write your congressperson to oppose it.  We agree the intent of this bill is to get more people to work.  However, as with most legislation, there are some unintended consequences.  There must be provisions for positions that could be negatively effected by a person with a poor credit history.  This 111th Congress has a horrible track record already for not even reading bills before voting.  Reach out and make a difference, make them read it, make them amend it!