The Fair Credit Reporting Act (“FCRA”) is a federal law governing the way in which credit reporting agencies can collect, use, and share consumers’ credit information. The main purpose of the Fair Credit Reporting Act is to promote accuracy, fairness, and privacy across consumer credit reports.
An example of this is how your credit history is regularly accessed by numerous parties, such as:
- Employers;
- Retailers;
- Lenders; and
- Landlords.
Without the protections provided by the FCRA, your credit history could be viewed and shared by any of those parties with no limitations. As such, the FCRA provides several important rights to consumers, such as:
- The right to request and view a copy of your personal credit report;
- The right to dispute errors or inaccurate information contained in your credit report;
- The right to know when and who accessed your credit report;
- The right to be informed if your credit report has been used negatively against you; and
- The right to seek damages if a credit reporting agency violates the FCRA.
The FCRA is one of two federal laws that form the basis of consumer rights law in the United States; the second federal law being the Fair Debt Collection Practices Act (“FDCPA”).
To reiterate, the FCRA gives consumers the right to request access and receive information about their credit reports. This includes receiving notifications when an entity asks to view their credit report, in the form of a disclosure. As such, an FCRA disclosure is essentially a notice that is sent to consumers that contains details about their credit report.
A common example of when an FCRA disclosure will occur is when an employer performs a background check on a worker. It is important to note that such a disclosure will only be allowed with the worker’s permission. If the employer obtains information illegally or without their consent, they will be in violation of the FCRA.
Generally speaking, a permissible disclosure under the FCRA will include the following information:
- A written statement explicitly stating that the employer intends to perform a background check on the worker, and that it will be used to make a decision about their employment;
- Clear and unambiguous terms and language;
- While there are some exceptions, the statement should be a standalone document and drafted in legible font;
- The employer must receive written permission from the worker that they consent to the background check; and
- Both forms must comply with all applicable federal, state, and local laws associated with FCRA disclosures.
Disclosures may also be used when conducting a background check in order to:
- Receive a loan or credit card;
- Evaluate a child support order; and/or
- Respond to a request from a state or federal government agency.
What Is In Your Credit Report?
A credit report provides a summary of how a person:
- Manages their credit accounts, such as payment history;
- The types of credit accounts that they have open; and
- Many other financial details.
It also helps creditors and lenders determine whether to offer an individual credit, and if so, the proper amount. Landlords, utility services, insurance companies, and cell phone providers may also use this information to make decisions about a consumer.
Some additional details that a credit report will generally contain include:
- Personal identifying information;
- Information regarding credit accounts, such as mortgages, student loans, credit card accounts, and car loans, along with the balance, payment history, and amounts attached to those accounts;
- Information related to bankruptcy and/or debt collection accounts; and
- The types of inquiries made to check a credit report.
After gathering this information, a credit bureau will then combine it to generate a credit score. An example of this would be how if a person has a considerable amount of debt, and many “hard” inquiries were made to check a credit report, these factors could lower their official credit score. A credit score may indicate the level of risk that a consumer poses, and can affect the interest rate imposed on the type of credit that they receive.
Credit scores can vary by credit bureau. What this means is that you would need to check the score you received from each credit bureau in order to get a complete picture of your entire credit history. The FCRA requires each of the three nationally recognized credit reporting companies (Equifax, TransUnion, and Experian) to provide one free copy of a FCRA credit report to each consumer every twelve months. An FCRA credit report is a standard credit report that is issued by one of the three credit reporting companies.
Some other requirements that these three companies must comply with under the FCRA include:
- Sending a copy of a consumer’s credit report upon their request;
- Conducting an investigation into disputed information or errors in the credit report;
- Ensuring that access to the credit report is restricted to the proper parties; and
- Permitting a consumer to “opt-out” of prescreened credit offers.
In addition to the three major credit reporting companies, there are other organizations that may collect and use consumer information. Such companies are responsible for:
- Reporting accurate information to credit bureaus;
- Disclosing negative information about a consumer to that person;
- Amending inaccurate information or fixing mistakes on a credit report;
- Ensuring that the credit bureaus also update credit reports in order to match any new information; and
- Implementing identity theft reporting and prevention measures.
Can Potential Employers Legally Check Your Credit Report?
The FCRA authorizes employers to request a person’s credit history if they have a legitimate business need for the information. Generally speaking, employers are allowed access to this information for purposes of deciding whether to hire, promote, or terminate an employee.
An employer must take specific steps before obtaining a credit check. Additionally, there are certain things that an employer must do if your credit history is a factor in their employment decision. Under the FCRA, an employer must first notify you in writing to obtain your permission before obtaining your credit report.
To obtain permission to run a credit report, a separate document must be created and signed. An example of this would be how an employer cannot insert a section into a job application or employment contract, asking you to grant them permission to run a credit check.
You do have the right to refuse to give an employer permission to run a credit report. However, your refusal may raise suspicion and give the employer reason to refuse to hire you, promote you, or retain you as an employee.
If your credit report is a reason that a potential employer refuses to hire you, the FCRA requires that the employer provide you with the following:
- A copy of the report;
- Information regarding your right to dispute the report; and
- Contact information for the credit bureau that issued the report.
If your credit report shows that you filed for bankruptcy, it is against federal law for an employer to terminate you because of the bankruptcy filing. A potential or current employer cannot use information they obtain from your credit report to discriminate against you. This would include discrimination based on:
- Race;
- National origin;
- Sex;
- Religion;
- Disability;
- Genetic information; and/or
- Age.
Do I Need A Lawyer For Employer Credit Checks?
Under the FCRA, an employer has the right to use information obtained in your credit report in order to make employment decisions. However, if you have been refused a position or wrongfully terminated for illegal reasons, such as discrimination or because you filed for bankruptcy, you should consult a wrongful termination lawyer.
An experienced wrongful termination attorney can help you understand your state’s specific laws regarding credit checks run by employers, as well as what your legal rights and options are under those laws.
