United States: CFPB Imposes $13 Million FCRA Consent Order On Large Consumer Reporting Agencies Due To Employment Background

On October 29, 2015, the Consumer Financial Protection Bureau ("CFPB") announced the settlement of an enforcement action against two affiliated consumer reporting agencies under the Fair Credit Reporting Act ("FCRA") based on these companies' employment background screening practices. The consent order requires these background screeners to pay a total of $13 million in penalties and consumer redress. The Order also requires significant changes in the companies' practices with regard to matching and use of public record information. This enforcement action provides another example of the CFPB flexing its regulatory muscle in the FCRA arena. All consumer reporting agencies ("CRAs"), all businesses that furnish data to a CRA ("furnishers"), and all users of data obtained from a CRA ("users") should be concerned about the CFPB's use of its enforcement authority.

The targets of the CFPB's enforcement action were General Information Services, Inc. and e-Backgroundchecks.com, Inc. (the "Respondents"). The Respondents provide public record background information – such as criminal records and civil judgment data – to employers who are conducting screenings on job applicants and current employees.

In the enforcement action, the CFPB claimed the Respondents failed to employ reasonable procedures to assure "maximum possible accuracy" of the data provided to employers, as required by the FCRA. One main thrust of the Order, for example, focused on the procedures used by Respondents to "match" a criminal record to a given individual.

The Order seemed to take exception with the "strict procedure" practices of Respondents' employees when deciding whether a record related to a consumer in the employment screening context. Under Section 613 of the FCRA, consumer reporting agencies under certain circumstances are required to use "strict procedures" to ensure that public records reported for employment purposes are complete and up to date. The Order, however, does not only address "strict procedures." It also addresses the broader standard of "reasonable procedures" generally applicable to almost all information reported by a consumer reporting agency for any permissible purpose.

Critics believe that the Order continues the CFPB's expansive efforts to legislate through consent decrees by attempting to press its aggressive interpretation of federal consumer protection laws – often far beyond what the plain language of the respective statutes and courts have imposed. For instance, the CFPB appears to conclude that matching should be done by requiring an exact match based on first, middle and last name, plus one additional identifier such as date of birth or Social Security number. By this Order, therefore, the CFPB in effect is attempting to create a detailed standard of conduct in matching data – but one which likely does not recognize the realities of the market. For example, very few if any courts provide a social security number of the defendant, making a match on this element impossible for some criminal records. Likewise, it is not uncommon for courts to record the middle name as the first name or to carry forward an error either intentionally introduced by the defendant (for example to avoid a warrant) or through key stroke errors by the court personnel. Indeed, there is substantial evidence that persons with criminal records frequently supply alternate names to defeat background checks. Thus, it would be dangerous to conclude that this Order should create an industry wide standard; using the CFPB's view could allow someone with a serious criminal conviction to avoid detection and gain employment in a highly sensitive place of employment, such as a daycare or senior living facility.

Another main thrust of the Order focused on the Respondents' internal compliance procedures. The Order claims they failed to have written procedures for researching public record information for consumers with common names, failed to analyze consumer dispute data to determine data integrity issues and identify potential reporting weaknesses, and failed to conduct regular meetings to discuss errors. The Order requires Respondents to correct all of these claimed deficiencies. Again, by this Order, the CFPB seeks to establish a detailed standard for internal compliance procedures down to the level of detail of how often internal meetings should occur to discuss consumer complaints (monthly).

Because the Respondents were unable to discern from the FCRA a requirement to use first, last, and middle names in matching, and the necessity of monthly meetings, the CFPB imposed significant monetary and non-monetary penalties. The Order requires the Respondents to establish a $10.5 million fund dedicated to payments to the consumers at issue. The Order also imposes a total of $2.5 million in civil money penalties, payable to the CFPB directly.

While the specifics of the Order are of particular concern to CRAs, the broader lesson of the Order is that the CFPB is asserting enforcement power under the FCRA that not only includes CRAs, but also any other businesses regulated by the FCRA, including furnishers and users. In the Order, the CFPB specifically cites its authority to enforce the FCRA against "persons subject to the FCRA." The phrase "persons subject to the FCRA" draws upon a provision of the FCRA that gives the CFPB enforcement authority over "any person" subject to the FCRA. The FCRA regulates not only CRAs, but also the conduct of many businesses that supply information to CRAs and most businesses that use data obtained from CRAs. Hence, the Order teaches that if your business is involved in FCRA-regulated activities, then the CFPB is interested in you. Moreover, the CFPB may not provide any guidance on an issue before an enforcement action is pursued. From a compliance perspective, businesses must look ahead to what issues will become important to the CFPB, which may not always be obvious to those not actively involved in the FCRA.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Authors
David N. Anthony
Timothy St. George
Keith J. Barnett
Alan D. Wingfield
 
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