Employers are permitted to use consumer reports when screening employment applicants and when evaluating employees for promotion, reassignment, or retention—as long as they comply with the Fair Credit Reporting Act (FCRA). FCRA (Public Law No. 91-508) Sections 604, 606, and 615 spell out their responsibilities and the methods for using consumer reports for employment purposes.

The FCRA, which became law in 1970, was intended to ensure that the information supplied by consumer reporting agencies (then called credit reporting agencies or sometimes, bureaus) was accurate and consumers were afforded recourse when they thought it was not. Amendments to the FCRA—which became effective September 30, 1997—significantly changed the relationship between the user (the employer) and the consumer reporting agency (CRA). It also clarified a number of ambiguities contained in the statute while increasing the legal obligations of users who procured consumer reports. The FCRA was again significantly amended in 2003. That revision, commonly called the FACT Act, clarified additional ambiguities and lessened some of the burdens placed on users in prior amendments. The following revisits some of the more substantial aspects of the FCRA and sheds light on some of the obligations of both users and CRAs.

What is a Consumer Report?

A consumer report contains information about a consumer’s personal and credit characteristics, character, general reputation, and lifestyle (a consumer is considered to be any natural person). A consumer report covered by the FCRA would include:

  • Criminal background checks
  • Credit checks
  • Driving record histories
  • Education, personal and employment background investigations
  • Internet and social media checks, such as Facebook and LinkedIn profiles and Twitter accounts

To be covered by the FCRA, a report must be prepared by a CRA—a business that assembles such reports for the purpose of reselling them.

An employer that performs its own investigation and does not use a CRA, does not trigger the compliance requirements of the FCRA. However, subscription based databases and for-fee online search services, or other third parties are all considered CRAs and thus their use requires FCRA compliance. For business reasons, some employers obtain and use investigative consumer reports—reports that include interviews with an applicant’s or employee’s friends, neighbors, or associates. These types of reports are also considered 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 Recent Amendments

Written Notice and Authorization. Before an organization can obtain a consumer report for employment purposes, it must notify the individual in writing—in the form of a stand-alone document consisting solely of this notice—that a report may be obtained. The consumer must also provide his or her written permission before the report can be ordered.

The FACT Act however, relieves employers from the FCRA’s permission and disclosure requirements when a consumer report is obtained in connection with an internal investigation. Under the amendment, several types of investigations are exempt from some of the FCRA requirements:

“Investigations of employee misconduct are exempt as well as any investigations required by law, regulation, or the employer’s written policies.” (15 U.S.C.1681a (p)(1)(B)).[1]

“Such investigations are exempt so long as the outside agency is not investigating a consumer’s credit rating and the information gathered during the investigation is not provided to any person except an agent of the employer, an agent of the government or regulatory agency, or as required by law.” (15 U.S.C.1681a (p)(1)(C) &(D)).

Adverse Action Procedures. If the consumer report obtained is relied upon for the purposes of deciding an adverse action (denying a job application, reassigning or terminating an employee, or denying a promotion) the employer must make further disclosures. Those disclosures must unfold in the following manner:

Step 1: Provide the applicant or employee a copy of the document entitled, A Summary of Your Rights Under the Fair Credit Reporting Act (copy of which can be obtain from the Federal Trade Commission’s website,;

Step 2: Communicate the intention to take the adverse action (commonly referred to as a pre-adverse action disclosure, when included with a consumer report in question);

Step 3: A copy of the consumer report (or summary thereof), if not yet provided;

“After taking any adverse action based in whole or in part on a communication described [in the law], the employer shall disclose to the consumer a summary containing the nature and substance of the communication upon which the adverse action is based, except that the sources of information acquired solely for use in preparing [the] consumer report need not be disclosed.”

Step 4: Disclosure (either verbal, written or electronic notification is acceptable) of the adverse action decided;

Step 5: A written adverse action notice which includes, a second copy of A Summary of Your Rights Under the Fair Credit Reporting Act, 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 which provided the original upon request within 60 days.

Certifications to Consumer Reporting Agencies. Before providing an individual’s consumer report to a user, the CRA must require the user’s certification that it is in compliance with the FCRA and that it will not misuse the information provided.

Restrictions on the use of Criminal Conviction records are eliminated. Per the amendment, an employer is no longer restricted using criminal conviction records which anti-date the report containing or disclosing the record more than seven (7) years.


There are legal consequences for employers who fail to comply with the FCRA. An offending employer can face both criminal and civil penalties (civil penalties are statutorily pegged at $1000 per violation). The law allows individuals to sue employers for damages in federal court and if able to prevail, recover court costs and reasonable legal fees. The law also allows permits punitive damages for deliberate violations. Additionally, the Federal Trade Commission, other federal agencies, and the states may sue employers for noncompliance and obtain civil penalties.

Special Considerations when using Credit or Criminal Background Histories

The U.S. Equal Employment Opportunity Commission (EEOC) has expressed concern that the use of credit histories in hiring decisions might have an adverse impact on some protected classes. Similarly, it has concerns regarding criminal background histories and recently issued guidelines for employers when taking an adverse employment action criminal history information. The guidelines suggest that employers consider the nature and gravity of the offense for which the applicant or employee was convicted, the time that has passed since the conviction, and the nature of the job held or sought.


In addition to the consideration mentioned above employers should know that many states and localities have placed further restrictions on the use of consumer reports and how they may be used. Employers are well advised to seek the advice of competent experts before taking adverse action against any consumer.


[1] The language of this section as well as that which follows was contributed by E. F. Ferraro, the author of this article, during the legislative amendment process in 2002 and was accepted as proposed.