January 21, 2005

RE: Background Checks Impacted By Fair Credit Reporting Act Notice

The Federal Trade Commission (FTC) has recently issued a Revised Summary of Rights under the Fair Credit Reporting Act (FCRA) effective January 31, 2005.

The FCRA imposes strict notice requirements on any employer who uses one of two types of Consumer Reports when making an employment decision. Consumer Reports include background checks of applicants or employees conducted by a Consumer Reporting Agency on behalf of an employer and are covered by this law. A Consumer Reporting Agency can include any third party retained by an employer to conduct some type of background check. Consumer Reports are written or oral communications from a Consumer Reporting Agency which relate to a consumer’s credit worthiness or other character issues which might be used to establish eligibility for employment. As an example, criminal background checks are Consumer Reports under certain circumstances. Investigative Consumer Reports cover the same issues as Consumer Reports but the information contained therein may be gathered from personal interviews with neighbors, friends, or associates of the employee or applicant.

An employer must not use either a Consumer Report or an Investigative Consumer Report without first notifying the applicant or employee that a report may be obtained and receiving written permission to obtain the report. If the employer intends to obtain an Investigative Consumer Report, then the FTC’s recently revised notice titled “A Summary of Your Rights Under the Fair Credit Report Act” must be provided to the applicant or employee at the point that permission is given to obtain the report.

Once the report is obtained, if an adverse action is taken, based in whole or in part on information contained in the report, then the employer must follow a two-step process. The first step is to notify the applicant or employee of the unfavorable information contained in the report, providing a complete copy of the report along with the Summary, if it has not yet been provided. The second step is that the employer must wait for a period of time before taking any adverse employment action.

The FTC has issued revised notices which must be used as of January 31, 2005. The revised Summary can be found at www.ftc.gov/os.2004/11/041119factaappf.pdf and the other revised notices can be found at www.ftc.gov/opa/2004/11/facta.htm .

As always, we hope this summary is timely and helpful. If you have any questions or need assistance developing or refining how you handle background checks, please contact Peter Bennett or me.

Sincerely,

Frederick B. Finberg