Traps for the Unwary: Credit, Consumer Reports & Hiring

January 16, 2013

pic-budget-jobsUnfortunately, operating a business in America today involves navigating a legal minefield. Unexpected legal liability or expensive litigation can ensnare businesses that do know the law. And the law can be absurdly complex and counter-intuitive. In NSBA’s new “Traps for the Unwary” series, we aim to offer insight on a wide variety of subjects including labor, employment, occupational safety, tax, employee benefits, securities, business entity, intellectual property, immigration, federal contracting, contract and tort law. This series should not be construed as legal advice.


There may be times where a business wants a credit report or other consumer report about an individual to assist them in employment decisions regarding hiring, promotion or reassignment.  As usual, it is not as simply as just calling up the reporting agency and ordering the report. If an employer decides to use a report in making an employment decision, the Fair Credit Reporting Act (FCRA) imposes obligations on the employer.

First, the employer must provide to the employee, or prospective employee, a separate, clear and conspicuous written disclosure that a consumer report may be obtained before the report is obtained.

Second, unless the application for employment was by mail, telephone or computer, before taking any adverse action based in whole or in part on the report, the employer must provide to the person to whom the report relates a copy of the report and a copy of a “Summary of Consumer Rights” as specified by regulation.  This document was changed in November to reflect recent amendments to FCRA that shift enforcement responsibilities from the Federal Trade Commission to the new Consumer Financial Protection Bureau (CFPB).  It must be used effective January 1, 2013.  To read the new “Summary of Consumer Rights,” click here.

Third, if the employer takes adverse action based in whole or in part on the report, then the employer  must provide to the person within 3 business days notification (1) that adverse action has been taken based on a consumer report received from a consumer reporting agency; (2) of the name, address and telephone number of the consumer reporting agency that furnished the consumer report; (3) that the consumer reporting agency did not make the decision to take the adverse action and is unable to provide to the consumer the specific reasons why the adverse action was taken; and (4) that the consumer may obtain a free copy of a report and may dispute with the consumer reporting agency the accuracy or completeness of any information in a report.

Fourth, if the employment application was by mail, telephone or computer and the employer takes an adverse action based in whole or in part on the report, then if the consumer requests a copy of the report from the employer, then, within 3 business days of receiving the consumer’s request, together with proper identification, the employer must send or provide to the consumer a copy of a report and a copy of the “Summary of Consumer Rights.”

Failure to take these steps may result in CFPB enforcement action, civil lawsuits (with a possibility of paying for the other side’s attorney’s fees given the language in FCRA) and civil liability.

See especially, 15 US Code §1681b for more details.

Please click here to read Traps for the Unwary #1: Arrest Records & Employment.

Please click here to read Traps for the Unwary #2: Social Media Policies.

Please click here to read Traps for the Unwary #3: Selling Stock in your Company.

Please click here  to read Traps for the Unwary #4: Preserving Limited Liability.

For questions, please contact NSBA General Counsel David R. Burton at

**NSBA cannot give legal advice with respect to specific situations.