Overview

Many employers perform background checks on candidates for employment, and can use the information obtained to make employment decisions. While this is permissible in most jurisdictions, the Fair Credit Reporting Act (“FCRA”), regulates how background check information can be obtained and used. Notably, prior to conducting a background check on an individual, the employer must provide them with a Summary of Consumer Rights.

On March 20, 2023, the Consumer Financial Protection Bureau (“CFPB”), the agency charged with enforcing the FCRA, published an amendment to model form Appendix K to Part 1022-  Summary of Consumer Rights (Appendix K).¹ Businesses using consumer  reports as part of their background check process must use the updated  “A Summary of Your Rights Under the Fair Credit Reporting Act” document in all pre-adverse action and adverse action notices starting March 20, 2024. The new form is available at Appendix K . The CFPB issued the update to the final rule to make non-substantive corrections to the contact information for various Federal agencies found in the Summary of Consumer Rights.

The Fair Credit Reporting Act

The FCRA² is the primary statute regulating the consumer reporting industry. The FCRA establishes consumers’ rights in relation to the information bearing on that consumer’s creditworthiness, known as a “consumer report,”³ as well as permissible uses of consumer reports. It also imposes certain responsibilities on the activities of three categories of entities: (1) consumer reporting agencies (“CRAs”), (2) entities furnishing information to CRAs (“Furnishers”), and (3) individuals who use consumer reports issued by CRAs, such as employers conducting a background check. The FCRA does not apply where the information is not furnished by a CRA, such as directly from state or federal databases.

Use of Credit Reports in Background Checks

An employer may use the information obtained through a consumer report (i.e. background check) to disqualify the candidate from employment. This decision is an “adverse action.” Adverse actions also include refusing to grant credit on substantially the terms requested and reducing insurance coverage.⁴

Prior to making the employment decision, the employer is required to provide a “pre-adverse action” notice. This “pre-adverse action notice” must include:

• A copy of the consumer report the employer received from the CRA,⁵ and
• The document entitled “A Summary of Your Rights Under the Fair Credit Reporting Act” published by the Consumer Financial Protection Bureau.⁶

The employer is also required to provide an “adverse action” notice, which must contain “an oral, written, or electronic notice of the consumer’s right to obtain a free copy of a consumer report on which the adverse action was based from the consumer reporting agency within a sixty day period, and to dispute with the consumer reporting agency the accuracy or completeness of the information.”⁷

Despite the redundancy, the FCRA mandates (and FTC guidance affirms) that employers inform applicants or employees of their right to obtain a free copy of the report, even though it has already been provided during the pre-adverse action phase.⁸

Next Steps

Employers should revise their procedures to ensure that the updated “A Summary of Your Rights Under the Fair Credit Reporting Act” is being used. Employers should also continue to be mindful of state laws that may restrict the use of background checks in employment. EEOC guidance on how to avoid discriminatory implications of criminal history found through background checks also remains in effect.⁹

¹ 88 FR 16531.

² 15 U.S.C. §§ 1681–1681x, codified at 12 C.F.R. §1022.

³ 15 U.S.C. §1681a(d), “The term “consumer report” means any written, oral, or other communication of any information by a consumer reporting agency bearing on a consumer’s credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living which is used or expected to be used or collected in whole or in part for the purpose of serving as a factor in establishing the consumer’s eligibility for- (A) credit or insurance to be used primarily for personal, family, or household purposes; (B) employment purposes; or (C) any other purpose authorized under section 1681b of this title,” (emphasis mine).

⁴ Id. §§ 1681a(k)(1), 1691(d)(6). See, e.g., United States v. Imperial Palace, Inc. CV-S-04-0963-RHH-PAL (D. Nev. 2004) (consent decree) (employer failed to provide adverse action notices when denying or rescinding offers of employment based on consumer report information); see also Electronic Data Systems, 114 F.T.C. 524 (1991) (consent order); McDonnell Douglas Corp., 115 F.T.C. 33 (1992) (consent order); Macy’s Northeast, Inc., 115 F.T.C. 43 (1992) (consent order).

⁵ 15 U.S.C. 1681b(b)(3)(A)(i).

⁶ 15 U.S.C. 1681b(b)(3)(A)(ii) states that the employer must provide the consumer with “a description in writing of the rights of the consumer under this subchapter, as prescribed by the Bureau under section 1681g(c)(3) of this title.”

⁷ 15 U.S.C. §1681m(a)(4).

⁸ FTC Staff Opinion Letter Dec. 18, 1997 to Harold R. Hawkey (https://www.ftc.gov/policy/advisory-opinions/advisory-opinion-hawkey-12-18-97). Op. Ltr. from FTC to Eric J. Weisberg  (June 27, 1997), (https://www.ftc.gov/legal-library/browse/advisory-opinions/advisory-opinion-weisberg-06-27-97).

⁹ See, EEOC Enforcement Guidance Number 915.002, Consideration of Arrest and Conviction Records in Employment Decisions Under Title VII of the Civil Rights Act of 1964 (Apr. 25, 2012), available at,  https://www.eeoc.gov/laws/guidance/enforcement-guidance-consideration-arrest-and-conviction-records-employment-decisions.