Credit History

Your advertisement for cashiers nets 100 applications. You want credit reports on each applicant. You plan to eliminate those with poor credit histories. What are your obligations?

You are considering a number of your long-term employees for major promotions. Can you check their credit reports to ensure that only financially responsible individuals are considered?

A job candidate has authorized you to obtain a credit report. The applicant has a poor credit history. Although the credit history is considered a negative factor, it's the applicant's lack of relevant experience that's more important to you. You turn down the application. What procedures must you follow?

As an employer, you may use consumer reports when you hire new employees and when you evaluate employees for promotion, reassignment, and retention — as long as you comply with the Fair Credit Reporting Act (FCRA). Sections 604, 606, and 615 of the FCRA spell out your responsibilities when using consumer reports for employment purposes.

The FCRA is designed primarily to protect the privacy of consumer report information and to guarantee that the information supplied by consumer reporting agencies is as accurate as possible. Amendments to the FCRA — which went into effect September 30, 1997 — significantly increase the legal obligations of employers who use consumer reports. Congress expanded employer responsibilities because of concern that inaccurate or incomplete consumer reports could cause applicants to be denied jobs or cause employees to be denied promotions unjustly. The amendments ensure (1) that individuals are aware that consumer reports may be used for employment purposes and agree to such use, and (2) that individuals are notified promptly if information in a consumer report may result in a negative employment decision.

What is a Consumer Report?
A consumer report contains information about your personal and credit characteristics, character, general reputation, and lifestyle. To be covered by the FCRA, a report must be prepared by a consumer reporting agency (CRA) — a business that assembles such reports for other businesses.

Employers often do background checks on applicants and get consumer reports during their employment. Some employers only want an applicant's or employee's credit payment records; others want driving records and criminal histories. For sensitive positions, it's not unusual for employers to order investigative consumer reports — reports that include interviews with an applicant's or employee's friends, neighbors, and associates. All of these types of reports are consumer reports if they are obtained from a CRA.

Applicants are often asked to give references. Whether verifying such references is covered by the FCRA depends on who does the verification. A reference verified by the employer is not covered by the Act; a reference verified by an employment or reference checking agency (or other CRA) is covered. Section 603(o) provides special procedures for reference checking; otherwise, checking references may constitute an investigative consumer report subject to additional FCRA requirements.

Key Provisions of the FCRA Amendments
Written Notice and Authorization.
Before you can get a consumer report for employment purposes, you must notify the individual in writing — in a document consisting solely of this notice — that a report may be used. You also must get the person's written authorization before you ask a CRA for the report. (Special procedures apply to the trucking industry.)

Adverse Action Procedures
If you rely on a consumer report for an "adverse action" - denying a job application, reassigning or terminating an employee, or denying a promotion — be aware that:

Step 1: Before you take the adverse action, you must give the individual a pre-adverse action disclosure that includes a copy of the individual's consumer report and a copy of "A Summary of Your Rights Under the Fair Credit Reporting Act" — a document prescribed by the Federal Trade Commission. The CRA that furnishes the individual's report will give you the summary of consumer rights.

Step 2: After you've taken an adverse action, you must give the individual notice — orally, in writing, or electronically — that the action has been taken in an adverse action notice. It must include:

• the name, address, and phone number of the CRA that supplied the report;
• a statement that the CRA that supplied the report did not make the decision to take the adverse action and cannot give specific reasons for it; and
• a notice of the individual's right to dispute the accuracy or completeness of any information the agency furnished, and his or her right to an additional free consumer report from the agency upon request within 60 days.

Certifications to Consumer Reporting Agencies
Before giving you an individual's consumer report, the CRA will require you to certify that you are in compliance with the FCRA and that you will not misuse any information in the report in violation of federal or state equal employment opportunity laws or regulations.

In 1998, Congress amended the FCRA to provide special procedures for mail, telephone, or electronic employment applications in the trucking industry. Employers do not need to make written disclosures and obtain written permission in the case of applicants who will be subject to state or federal regulation as truckers. Finally, no pre-adverse action disclosure or Section 615(a) disclosure is required. Instead, the employer must, within three days of the decision, provide an oral, written, or electronic adverse action disclosure consisting of: (1) a statement that an adverse action has been taken based on a consumer report; (2) the name, address, and telephone number of the CRA; (3) a statement that the CRA did not make the decision; and (4) a statement that the consumer may obtain a copy of the actual report from the employer if he or she provides identification.

In Practice...

You advertise vacancies for cashiers and receive 100 applications. You want just credit reports on each applicant because you plan to eliminate those with poor credit histories. What are your obligations?

You can get credit reports — one type of consumer report — if you notify each applicant in writing that a credit report may be requested and if you receive the applicant's written consent. Before you reject an applicant based on credit report information, you must make a pre-adverse action disclosure that includes a copy of the credit report and the summary of consumer rights under the FCRA. Once you've rejected an applicant, you must provide an adverse action notice if credit report information affected your decision.

You are considering a number of your long-term employees for a major promotion. You want to check their consumer reports to ensure that only responsible individuals are considered for the position. What are your obligations?

You cannot get consumer reports unless the employees have been notified that reports may be obtained and have given their written permission. If the employees gave you written permission in the past, you need only make sure that the employees receive or have received a "separate document" notice that reports may be obtained during the course of their employment — no more notice or permission is required. If your employees have not received notice and given you permission, you must notify the employees and get their written permission before you get their reports.

In each case where information in the report influences your decision to deny promotion, you must provide the employee with a pre-adverse action disclosure. The employee also must receive an adverse action notice once you have selected another individual for the job.

A job applicant gives you the okay to get a consumer report. Although the credit history is poor and that's a negative factor, the applicant's lack of relevant experience carries more weight in your decision not to hire. What's your responsibility?

In any case where information in a consumer report is a factor in your decision — even if the report information is not a major consideration — you must follow the procedures mandated by the FCRA. In this case, you would be required to provide the applicant a pre-adverse action disclosure before you reject his or her application. When you formally reject the applicant, you would be required to provide an adverse action notice.

The applicants for a sensitive financial position have authorized you to obtain credit reports. You reject one applicant, whose credit report shows a debt load that may be too high for the proposed salary, even though the report shows a good repayment history. You turn down another, whose credit report shows only one credit account, because you want someone who has shown more financial responsibility. Are you obliged to provide any notices to these applicants?

Both applicants are entitled to a pre-adverse action disclosure and an adverse action notice. If any information in the credit report influences an adverse decision, the applicant is entitled to the notices — even when the information isn't negative.

Non-compliance
There are legal consequences for employers who fail to get an applicant’s permission before requesting a consumer report or who fail to provide pre-adverse action disclosures and adverse action notices to unsuccessful job applicants. The FCRA allows individuals to sue employers for damages in federal court. A person who successfully sues is entitled to recover court costs and reasonable legal fees. The law also allows individuals to seek punitive damages for deliberate violations. In addition, the Federal Trade Commission, other federal agencies, and the states may sue employers for noncompliance and obtain civil penalties. 

Fair Credit Reporting Act
The Federal Trade Commission's Fair Credit Reporting Act (FCRA) was put into effect in 1971 to protect consumer rights. The FCRA is the federal law that regulates credit reporting companies. It specifies consumer rights to review the information and contest inaccuracies, as well as defines who can access the reports and for what reasons.

What are your rights under the FCRA?
As a consumer, you have certain rights when it comes to how your credit history is maintained and used. The consumer reporting agencies that collect and maintain this information must abide by rules set up by the FCRA. These include:

Report access - Only those who have a "permissible purpose" can access your report. This means that only people with whom you've established a business relationship, such as a lender, credit card company, landlord, insurer, employer, etc. can access your report.

Written consent - For reports that are given to employers or potential employers, written consent is required. Also, no medical information can be reported to anyone without your written consent.

Personal access - You have the right to get a copy of your report and a list of everyone who has accessed it. The law also sets a maximum charge for the report, which is $9 as of 2002. Under special circumstances, you may get a free copy once every 12 months. These circumstances include: unemployment, welfare, fraud, or if you've been denied credit because of something in your report. In most cases, you have to request your report within 60 days of the given circumstance.

Credit denial - If you are denied credit or employment (or some other service or product you were seeking) as a result of something in your credit report, then the person who denied you has to tell you why and how to contact the credit bureau that provided the information.

Dispute inaccuracies - If you find that your report has inaccurate information, then you can dispute the information and the CRA has to reinvestigate it within 30 days. Until it is proven accurate, they cannot put the disputed information on the report unless they include your written statement of dispute along with it. If you prove that the information is inaccurate, then it has to be removed from the report permanently within 30 days. It is then the responsibility of the national CRA you are dealing with to inform the other national credit reporting agencies of the error.

Outdated information - In most cases, negative information stays on your report for seven years. Bankruptcy information stays on for 10 years.

Removing your name from marketing lists - You have the right have your name removed from lists that credit reporting agencies sell to marketers.

Seek damages - If someone accesses your report without "permissible purpose" or without your written permission, or violates one of the other specifications of the FCRA, then you can sue for damages.

Fixing Errors
What if your name is Bob Jones, and when you get your credit report from one of the credit bureaus you find that there are accounts listed there that are held by another Bob Jones? Or, you find that your unemployed and debt-heavy brother's information is showing up on your report? What do you do? Under the FCRA, you have the right to, and the CRA has the responsibility of, correcting any errors or incomplete information in your credit report.

Listed below are some steps you can take to correct errors on your report. Whatever you do, don't use one of those companies that say they can "fix" your credit history -- erase bankruptcies, liens, bad credit, etc. While there are some legitimate companies out there that can help you, you can do anything they can do.

One very important thing is to document everything you do (dates and times of phone calls, people you spoke with, what they said, what your action was, etc.), and keep copies of everything you send them. Don't send original documents -- send copies. Remember to be aggressive and persistent. This process may take a while -- usually three to six months.

Let the paperwork begin...
You will begin a long and often arduous task of writing letters explaining the inaccuracies. First, send a letter to the CRA to give your side of the story and try to set straight the inaccuracies that have been reported. The letter should include your name and address and explain what is inaccurate and why. Tell them the facts and request a correction to your report. It would also help to include a copy of your report with the incorrect information circled, along with copies of any documentation that supports your claim. Send your letter by certified mail with a return receipt so you know it was received. Keep a record of everything you sent.

Second, send a letter to the merchant or creditor who supplied the incorrect information to make it known that you are disputing it. Send copies of the documentation that supports your claim, just as you did with the CRA.

(NOTE: Most of the national credit bureaus allow you to begin the dispute process online. This isn't a bad place to start; but if you have additional documentation, presenting it the good old fashioned way is probably best.)

Give the CRA 30 days...
The credit reporting agency legally has 30 days to investigate your claim (unless your claim is deemed "frivolous" or "irrelevant"). If after this amount of time you haven't heard back, call the customer service department. There is usually a toll-free number on the credit report that you can call for assistance. Remember to keep notes of your conversations and any actions that were taken as a result.

Re-reviewing your credit report...
When you get a written response from the credit agency, you'll also get a new copy of your credit report (if there were any changes). If any information is changed on the report, the CRA cannot change it back unless the creditor provides proof that it was accurate. In this case, you will get notification from the CRA that the item has been put back on your report. You'll receive the contact information for the creditor or merchant so you can begin your battle (if you know you're right). Like we said at the beginning, be aggressive and persistent! Find out the creditor's side of the story. See below to find out what to do if they're right and you're wrong.

What if you're wrong?
So, what if you dispute something and then find out that they were right and you were wrong? One thing to try is to go back to the creditor and try to persuade them to take it off your report. Of course, this will depend on how bad the problem was or how often you were late with payments, but it is still worth a shot. The creditor can legally remove anything they have reported whenever they want to. If that doesn't work, you can still add a statement (of limited length) to go along with your report, but that's about all you can do (other than debt validation in the case of collections). If the negative information is accurate, it can haunt your credit report for seven years. These are the exceptions:

• Bankruptcies can remain for 10 years.
• Criminal conviction information can remain indefinitely.
• Lawsuits and unpaid judgments can remain for seven years or until the statute of limitations runs out (whichever is longer).
• Credit information reported because of an application for credit or life insurance that is over $150,000 can remain indefinitely.