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Risk Management Bulletin

Tips to Avoid a FCRA-related Lawsuit

By October 4, 2014No Comments

Class action lawsuits involving the Fair Credit Reporting Act (FCRA) are on the rise; according to a report by the law firm Littler Mendelson, during June and July alone, more than a nationwide dozen class action suits were filed against employers across the country. Although many of these suits may appear to be based on the most trivial technicalities, they can still result in millions of dollars in losses.

FCRA suits generally arise as a result of two causes: Employers fail to follow proper protocol when obtaining a report from a credit reporting agency (CRA), or they fail to observe the steps required when information from a report results in an “adverse action.”

In a nutshell, here’s what you need to know:

  • Before a company can obtain a report form a CRA, it must provide a written disclosure to the applicant, typically in a separate document that solely addresses the company’s intent to collect information.
  • The applicant must provide written permission to allow collection of data from a CRA.
  • When contacting the CRA, the company must certify that it is requesting the report for permissible purposes and that it is in compliance with FCRA and equal opportunity employment laws.
  • If the company decides to take adverse action, such as denial of employment, based on information in the CRA report, it must first provide a notice to the applicant, including a copy of the CRA report and a copy of the statutory Summary of Rights. These rights provide the applicant with a chance to discuss and dispute the information prior to an action being taken.
  • If the company decides to move forward with an adverse action, it must provide the adverse action notice to the applicant orally, by electronic methods or in writing.
  • The adverse action must include: contact information for the CRA; a statement that indicates the CRA is not responsible for the action; a statement that the applicant has a right to obtain a copy of the report; and a statement that the applicant has the right to dispute the report’s contents.