FTC Issues Guidance to Landlords for the Use of Consumer Reports

The FTC has issued a publication that helps landlords understand the proper steps to take when using background checks.  Much like its guidance, Background Checks: What Employers Need to Know, this publication details the obligations of users of consumer reports under the Fair Credit Reporting Act (FCRA). The guidance details what a consumer report is, what is required before the use of a consumer report, and the proper adverse action steps.

The FTC defines a Consumer Report as any information about a person’s credit characteristics, rental history, or criminal history. These reports include:

•          A credit report from a credit bureau, such as Trans Union, Experian, and Equifax or an affiliate company;
•          A report from a tenant screening service that describes the applicant’s rental history based on reports from previous landlords or housing court records;
•          A report from a tenant screening service that describes the applicant’s rental history, and also includes a credit report the service got from a credit bureau;
•          A report from a reference checking service that contacts previous landlords or other parties listed on the rental application on behalf of the rental property owner; and
•          A report from a background check company about an applicant or tenant’s criminal history.

Before Getting a Consumer Report

The guidance puts an emphasis on permissible purpose. Permissible purpose means that landlords have a legitimate business need that requires a background check. In the case of landlords, they must only use consumer report information for the purpose of screening applicants and/or tenants who apply for rental housing or renew a lease. While written consent is not required from applicants, it is a great way for landlords to prove they have permissible purpose for the use of a consumer report.

The FTC notes that landlords should avoid a blanket policy of refusing to rent to anyone with a criminal history, as it may violate the Fair Housing Act.

Adverse Action

It is important to note that adverse action does not only consist of the denial of an application. Adverse action also includes:

•          The necessity for a cosigner on a lease if an applicant does not meet the income requirements;
•         The requirement of a deposit that would not be required for another applicant;
•         The requirement of a larger deposit than might be require for another applicant; and
•         Raising the rent to a higher amount than for another applicant.

Whether an employer or a landlord, one thing remains constant. You must provide the applicant notice that you are taking adverse action (any of the measures listed above) and the reasons for the action. While the notice can be given orally, in writing, or electronically, we recommend that the notice is given in writing for auditing purposes. Please note that an adverse action notice is required even if the consumer report wasn’t the primary reason for the decision. If the consumer report played any part in the decision making process, the applicant/tenant must be notified.

The Adverse Action Notice must include:

• the name, address, and phone number of the consumer reporting company that supplied the report;
• a statement that the company that supplied the report did not make the decision to take the unfavorable action and can't give specific reasons for it; and
• a notice of the person's right to dispute the accuracy or completeness of any information the consumer reporting company furnished, and to get a free report from the company if the person asks for it within 60 days.

To view the guidance in full, click here.

FTC Issues New Guidance on Background Screening for Consumer Reporting Agencies

A new guidance titled “What Employment Background Screening Companies Need to Know About the Fair Credit Reporting Act (FCRA)” has been released by the Federal Trade Commission (FTC) to better define the responsibility background screening firms have to clients and consumers in general. Background reports are described by the FTC as consumer reports under the FCRA as they “serve as a factor in determining a person’s eligibility for employment, credit, insurance, housing, or other purposes which include information on a consumer’s credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living.”

The responsibilities of consumer reporting agencies under federal law are stated as such:

·         Following reasonable procedures to assure accuracy

·         Getting certifications from clients

·         Providing clients with information about the FCRA

·         Honoring the rights of applicants and employees

Following reasonable procedures to assure accuracy

The release of this guidance tells you one thing. Many consumer reporting agencies are not taking reasonable measures to ensure that the report is accurate. Ensuring accuracy means a couple of different things. One, the background screening company needs to make sure that the information obtained relates to the individual in question. And two, the information obtained has not been expunged or otherwise sealed.

Essentially, our duty to our clients and consumers alike is to provide background information that can be directly linked to the applicant/employee through personal identifiers, and the report consists of strictly convictions as opposed to arrest records. Individuals should not be punished for an arrest that did not result in a conviction. That is why our adjudication team verifies any information found in a national criminal database search at the county level.

Getting certifications from your clients

Basically, CRAs need to make sure that their clients have a permissible purpose to obtain the background report. In this case, permissible purpose means that the background check is used solely for the determination of employment. Therefore, background screening companies must get confirmation from their clients that:

1)      The employer notified the applicant and got the applicant’s written permission to get a background report

2)      The employer will comply with the FCRA requirements; and

3)      The employer won’t discriminate against the applicant or employee, or otherwise misuse the information in violation of federal or state equal opportunity laws or regulations

It is for this reason that clients are firmly vetted before the use of our services. Once it is confirmed that the client is a business using our services solely for employment purposes, they must sign an agreement that states that they will comply with FCRA requirements, including attaining consent prior to conducting a background check. Consent forms are stored for auditing purposes.

Providing your clients with information about the FCRA

Clients must receive information about their responsibilities under the FCRA. The document “Notice to Users of Consumer Reports” must be provided to each client to ensure they know what is required of them under the statute. One such responsibility of employers is informing every applicant or current employee of their consumer rights in terms of background screening. This information, known as “A Summary of Your Rights Under the Fair Credit Reporting Act”, is to be provided to each applicant/employee undergoing a background check.

Honoring the rights of applicants and employees

Because the use of consumer reports can bar individuals from employment, credit, insurance, or housing, it is important for consumers to know their rights. These rights are protected under the FCRA due to the major impact inaccuracies can have on an individual’s ability to obtain employment. The following is a list of consumer rights under the FCRA:

·         You must be told if information in your file has been used against you

·         You have the right to know what is in your file

·         You have the right to dispute incomplete or inaccurate information

·         Consumer reporting agencies must correct or delete inaccurate, incomplete, or unverifiable information

·         Consumer reporting agencies may not report outdated negative information

·         Access to your file is limited

·         You must give your consent for reports to be provided to employers

·         You may seek damages from violators

To read the FTC guidance in full, click here.

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Ban-the Box Update (August 2014)

Many cities and states are adopting or expanding "Ban the Box" regulations. Here is the latest.

San Francisco

                Today, August 13^th, San Francisco’s Fair Ordinance goes into effect. They certainly are not the first to enact what many are calling “Ban the Box” legislation. This ordinance applies to both the public and private sector. San Francisco employers need to ensure they are up to code on their background screening.

Illinois

                Another change employers should be aware of is Illinois’ expanded “ban the box” legislation that now includes private employers. This makes Illinois the fifth state in the nation to require both public and private employers to limit inquiry about convictions. The other states are Minnesota, Hawaii, Massachusetts, and Rhode Island. Illinois is calling their “Ban the Box” legislation the Job Opportunities for Qualified Applicants Act. It takes effect on January 1, 2015. 

New Jersey

                Governor Chris Christie signed the Opportunity to Compete Act on August 11^th. This law expands New Jersey’s “Ban the Box” regulations to the private sector, much like Illinois’ Job Opportunities for Qualified Applicants Act. It is set to take effect on March 1, 2015. This makes New Jersey the 13^th state to adopt “Band the Box” legislation, and the 6^th state to expand the regulations to the private sector.

“Ban the Box” legislation is spreading like wildfire. As a background screening provider, the only thing we can do is keep you updated on the latest employment screening standards.

While S2Verify cannot provide legal advice, we can suggest you discuss with counsel, the following guidelines:

•          Do not ask about arrests that did not lead to a conviction

•          Do not ask about an individual’s conviction history at the beginning of the hiring process (such as the application)

•          Only after a conditional offer has been made can one ask about criminal history

•          Only convictions related to the job can be considered in the decision to deny employment

Three Employers Face Class Action Lawsuits from the Same Law Firm

 Despite all of the FCRA-related class action suits taking place, it appears large companies are not taking an appropriate course of action to ensure they are in compliance. One has to wonder whether, whether it is simply a lack of attention to detail (That would be a surprise) or simply HR/Legal/Compliance not staying current. The latest three companies in question are Panera, LLC, American Multi-Cinema, Inc. (AMC), and Nine West Holdings. Two of these class action suits involve the same plaintiff, and all three are from the same Florida law firm. In each of these cases, the plaintiff applied for employment online. Each of these companies allegedly failed to provide a valid, compliant consent form before initiating pre-employment background checks.

An employer’s obligation before obtaining background information is as follows (from the co-published FTC/EEOC guide):

·         Tell the applicant or employee you might use the information for decisions about his or her employment. This notice must be in writing and in stand-alone format. The notice can’t be in an employment application. You can include minor additional information in the notice (like a brief description of the nature of consumer reports), but only if it does not confuse or detract from the notice.

·         If you are asking a company to provide an “investigative report” – a report based on personal interviews concerning a person’s character, general reputation, personal characteristics, and lifestyle – you must also tell the applicant or employee of his or her right to a description of the nature and scope of the investigation.

·         Get the applicant’s or employee’s written permission to do the background check. This can be part of the document you use to notify the person that you will get the report. If you want the authorization to allow you to get background reports throughout the person’s employment, make sure you say so clearly and conspicuously.

You can find the FTC/EEOC guidance as a whole here.

Panera allegedly violated the FCRA by not providing a consent form specifically for a consumer report. The plaintiff also alleged that the bakery-café chain included extraneous information that detracted from the notice. American Multi-Cinema, Inc. (AMC) allegedly did not have a stand-alone consent form for online application for employment. And finally, Nine West Holdings allegedly had consent language that was part of a web page that contained a number of links to Nine West information on the website.

The main takeaways from these alleged violations is:

·         Your consent, AKA disclosure and authorization, must be a stand-alone (not part of the application) form.

·         The consent form cannot contain extraneous information

·         The purpose of the consent must be clearly stated (i.e. employment screening)

The lawsuit demonstrates that violations of the FCRA can create large potential liability.  Potential class members, including employees and prospective employees, may be entitled to statutory damages of up to $1,000 for each violation in the case of willful non-compliance. Class action lawsuits also create exposure for large awards of attorney’s fees and the potential exposure to punitive damages.

If you have any doubts about your company’s FCRA compliance, PLEASE act before you wind up on the wrong end of a class-action lawsuit.

FTC and EEOC Co-Publish Background Screening Compliance Guide

On March 10, 2014, the U.S. Federal Trade Commission (FTC) and Equal Employment Opportunity Commission (EEOC) co-published two guides to help employers and applicants understand how to implement a legally compliant background screening program. The two documents are titled Background Checks: What Employers Need to Know and Background Checks: What Job Applicants and Employees Should Know. The FTC is in charge of enforcing the Fair Credit Reporting Act (FCRA), a federal law that regulates collection, dissemination, and the use of consumer information. The EEOC enforces Title VII of the Civil Rights Act, which prohibits discrimination by employers on the basis of race, color, religion, sex or national origin.

Both agencies stress that employers get permission from applicants before getting background reports, and must not unlawfully discriminate in the use background checks. The agencies are both tasked with regulating background screening, so they decided to work together on this guidance. The objective of the guidance is that both sides (employers and job applicants) fully comprehend their rights as well as their obligations.

The first guide, Background Checks: What Employers Need to Know, contains instruction for employers on several steps of the background screening process. Both agencies include compliance information at each stage of the process. There is instruction on what to do before you get background information, how to use background information, and the disposal of background information.

The second short guide, Background Checks: What Job Applicants and Employees Should Know, serves to educate applicants and employees on their rights and how to handle a breach of their rights by an employer. The guidance is written in plain terms so as clearly understood by consumers. There is also contact information should an applicant/employee feel their rights have been violated.

You can find the full guide for employers here.

You can find the full guide for applicants and employees here. 

Assessment of the Effects of EEOC's 2012 Background Screening Guidance

In December of 2012, the U.S. Commission on Civil Rights held a briefing to assess the effects of the Equal Employment Opportunity Commission’s 2012 Guidance. This briefing was held to discuss the impact that their guidance had on background screening for both black/Hispanic applicants and employers. Record of this briefing was just released as a 346-page report. I have taken the time to summarize the main points discussed in the report.

The briefing consisted of 17 speakers from diverse backgrounds. While some of the speakers were pro-EEOC Guidance, many speakers took issue with the 2012 Guidance in some way or another.

The speakers are as follows: 

• Alfred Blumstein, Professor of Urban Systems, Carnegie Mellon University

• Carol Miaskoff, Acting Associate Legal Counsel, EEOC

• Don Livingston, Parter, Akin, Gump, Strauss, Hauer & Feld

• Garen Dodge, Partner, Jackson Lewis LLP

• Glenn E. Martin, Vice President of Development and Public Affairs and Director of the David Rothenberg Center for Public Policy at the Fortune Society

• Harry Holzer, Professor of Public Policy, Georgetown University

• Jeffrey Sedgwick, Co-Founder, Keswick Advisors

• Jonathan Segal, Partner, Duane Morris LLP, Legislative Director, Society for Human Resource Management

• Julie Payne, Sr. Vice President and General Counsel of G4S Secure Solutions USA

• Lucia Bone, Founder of Sue Weaver C.A.U.S.E. (Consumer Awareness of Unsafe Service Employment)

• Montserrat Miller, Partner, Arnall Golden Gregory; Counsel, National Association of Professional Background Screeners (NAPBS)

• Nick Fishman, Co-Founder, Chief Marketing Officer and Executive Vice President, EmployeeScreenIQ

• Richard Larson, President, Winning Work Teams, Inc.

• Richard Mellor, VP, Loss Prevention, National Retail Federation

• Roberta Meyers, Director of Legal Action Center’s National Helping Individuals with Criminal Records Reenter through Employment Network, Also Known as H.I.R.E

• Todd McCracken, President, National Small Business Association

• William Dombi, VP, National Association for Home Care and Hospice

Objective of EEOC Guidance

The EEOC claimed the 2012 Guidance is in response to a disparate impact background screening has had on racial minorities. In other words, minorities have been experiencing difficulties while seeking employment due to a past criminal conviction. The objective of the EEOC is to give minorities an equal chance to re-integrate into society.

The Guidance:

• Puts employers on notice that categorical exclusions for people with certain arrest and conviction records may violate Title VII

• Emphasizes its earlier recommendation that job applications not ask about criminal records, and if they do ask, that they limit inquiries to conviction records for which exclusion would be job-related with business necessity

• Offers a series of examples of common policies and practices that violate Title VII 

• Informs local and state governments that barring people with certain criminal records from jobs or occupational licenses also could violate Title VII.  

Advocates of the EEOC Guidance made several arguments for its most recent list of best practices:

• There are over 65 million individuals with criminal records in this country

• By age 35, one-third of all young black men have been incarcerated at some point. 

• A person should not be haunted many years later by a mistake they made at a young age.

• Criminal Records have a more negative impact on employment for minorities.

• Recidivism probability declines with time clean after an arrest or conviction.

• Recidivism is less probable if an individual gains employment.

Speaker Glenn E. Martin presented a study that showed that black applicants with a criminal record were twice as likely to be denied a job as white applicants. He also reported that black and Latino applicants with clean backgrounds fared no better than white applicants just released from prison.

Harry Holzer made several compelling points:

“The prevalence of arrests and convictions among less-educated American men substantially reduces employer willingness to hire them later in life and worsens their employment outcomes more generally, in ways that generate clear “disparate impacts” on minority (especially black) men.

The very high costs of previous criminal histories on employment are borne not only by the offenders themselves, but also by their families and children, their communities, and the US economy more broadly; accordingly having some successful policy efforts to improve employment outcomes for this population are in the nation’s interest.

The EEOC Guidance should be viewed as one of several potentially effective legal and policy efforts to reduce the many barriers to employment among men with criminal records and thus to improve their employment outcomes.”

The Other Side of the Argument

Many speakers stressed that employers should not be restricted in their use of background checks due to:

• The reality of recidivism

• The prevalence of violent and/or theft-related offenses among inmates. 

• OSHA rules that require employers to provide a safe workplace. 

• Federal, state and local laws and licensing requirements that restrict individuals with certain convictions from employment in selected occupations. 

• State laws that put employers at risk for hiring mistakes. 

• Employer desire to protect business assets.  

Major Concerns 

Many speakers took issue with at least some part of the 2012 Guidance. The concerns that were echoed by the majority were:

• The Guidance is unclear. It is written in a way that is confusing to small business owners.

• The Guidance is vague about the act of conducting an individualized assessment.

• A conflict may arise when a state law mandates a background check, but taking adverse action based on that background check may result in a class action.

• The EEOC’s strategic enforcement plan to create class claims from individual claims encourages investigators to conduct overbroad inquiries.

• The EEOC’s restriction on the use of criminal background checks will have disastrous effects on public safety.

• The guidance results in more risk to the employer. For instance, an employer may feel pressure to hire an employee with a criminal record against his better judgment, resulting in a negligent hiring law suit. 

The EEOC aims to give minorities a fair chance to obtain a job after a conviction. They argue that the struggle to re-integrate into society has a profound effect on not only the individuals involved, but the economy as a whole. Frankly, nobody wants an individual to be perpetually unemployed because of a single mistake they made. But according to those opposed to the guidance as it stands, here lies the dilemma. 

The opposition claims if an employer takes a chance on an applicant with a prior conviction, employees and clients are potentially put at risk. By treating minorities with prior convictions as a protected class, are we putting co-workers and customers at risk? Who is correct, the EEOC or those who spoke out against the Guidance? 

We do not have the answer, but we do feel a certain responsibility to help companies comply with the EEOC’s 2012 Guidance. Our clients can rest assured that we will provide as much information as possible to help them maintain compliance. Some of the concerns that were voiced by several speakers have not yet been answered, but we will keep an eye on any potential developments/changes the EEOC might make. 

You can find the U.S. Commission on Civil Rights’ entire report here. Comments? Concerns?

Newark (NJ) Ordinance "Bans the Box" and Significantly Restricts the Use of Criminal History Information in Employment

The City of Newark, New Jersey recently passed an ordinance that will significantly impact employers’ and other entities’ ability to conduct criminal background checks or even ask about a candidate’s criminal background. The ordinance limits both when and the extent to which employers may ask about or use criminal history in employment. Newark’s ordinance12-1630, entitled “Ordinance To Assist The Successful Reintegration Of Formerly Incarcerated People Into The Community By Removing Barriers To Gainful Employment And Stable Housing After Their Release From Prison; And To Enhance The Health And Security Of The Community By Assisting People With Criminal Convictions On Reintegration Into The Community And Providing For Their Families,” goes into effect on November 18, 2012.

Newark’s ordinance is the latest example of a series of efforts at the federal, state and local level aimed at curtailing employers’ ability to use criminal history information in employment. At the federal level, employers should be aware of the Equal Employment Opportunity Commission’s (EEOC) April 25, 2012 Guidance on the Use of Arrest and Convictions (the Guidance) which sets forth practices employers may want to consider so as not to be a target of the EEOC. Similarly, a number of states have pending legislation seeking to follow the EEOC’s lead. This, in addition to other states which have already regulated this area.

Who is Covered Under Newark’s Ordinance

Newark’s ordinance is only applicable when the “the physical location of the prospective employment [is] in whole or substantial part, within the City of Newark.” In that sense, it is of limited local application. Importantly, the term “employer” is defined as “any person, company, corporation, firm, labor organization, or association, which has five (5) or more employees and does business, employs persons, or takes applications for employment within the city of Newark…”

“Employment” is defined more broadly, however, as “any occupation, vocation, job, work or employment with or without pay, including temporary or seasonal work, contracted work, contingent work, and work through the services of a temporary or other employment agency, or any form of vocational or educational training with or without pay.” (emphasis added).
These definitions suggest that the prohibitions contained in the ordinance, as well as the affirmative obligations it imposes, may apply with equal force when an employer is seeking volunteers, students, or independent contractors as opposed to solely employees.

As always, we suggest you consult with your own counsel regarding this matter, however feel free to contact us for further information.

EEOC Issues Enforcement Guidance On the Use of Arrest and Criminal Conviction Record in Employment Screening

The EEOC issued their Enforcement Guidance today, April 25, 2012, on how arrest and criminal conviction records can and should be used by employers with regards to hiring.  

The guidance document can be found at www.eeoc.gov/laws/guidance/arrest_conviction.cfm.

We encourage you to please take the time to read this document.  Should you have questions, please feel free to reach out to us at anytime for further discussion.

FTC Issues Report: "Forty Years of Experience with the Fair Credit Reporting Act"

The Federal Trade Commission today issued a staff report, that compiles and updates the agency’s guidance on the Fair Credit Reporting Act (FCRA), the 1970 law designed to protect the privacy of credit report information and ensure that the information supplied by credit reporting agencies is as accurate as possible. A credit report contains information about a consumer’s personal and credit characteristics, character, and general reputation and is used to make credit, employment, insurance and other decisions.

"The employment screening rules and regulations continue to change and this will have an impact on our industry" says Bill Whitford, CEO of S2verify, LLC.

The new staff report, entitled “Forty Years of Experience with the Fair Credit Reporting Act: An FTC Staff Report and Summary of Interpretations,” provides a brief overview of the FTC’s role in enforcing and interpreting the FCRA and includes a section-by-section summary of the agency’s interpretations of the Act.

The FTC is also withdrawing the agency’s 1990 Commentary on the FCRA, which has become partially obsolete since it was issued 21 years ago. The 1990 Commentary was comprised of a series of FTC statements about how it would enforce the various provisions of the FCRA. Since 1990, the FRCA has been updated several times, most significantly by the Consumer Credit Reporting Reform Act of 1996 and the Fair and Accurate Credit Transactions Act of 2003, known as the FACT Act. Both updates expanded the provisions of the FCRA.

The new staff report deletes several FTC interpretations in the 1990 Commentary that have since been repealed, amended, or have become obsolete or outdated. It also modifies some interpretations in the 1990 Commentary, and adds several interpretations reflecting changes that Congress has made to the FCRA over the years, rules issued by the FTC and other agencies under the FACT Act, statements in numerous staff opinion letters, and the staff’s experience from significant enforcement actions.

Recent legislation has transferred the authority to issue interpretive guidance under the FCRA to the Consumer Financial Protection Bureau (CFP. Withdrawing the 1990 Commentary now will ensure that this obsolete document does not transfer to the CFPB.


The Commission vote approving the staff report on the FCRA and withdrawing the 1990 Commentary was 5-0. The report and Federal Register notice can be found on the FTC’s website and as links to this press release. More information for consumers about the FRCA can be found here.