CFPB Emphasizes Employer Obligations to Follow Background Check Rules in Consumer Reports

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October 24, 2024

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  • Employers must adhere to the FCRA, even when making employment-related decisions using background dossiers, algorithmic scores, and other third-party consumer reports about workers.

Discussion:

On October 24, 2024, the Consumer Financial Protection Bureau (CFPB) issued new guidance aimed at protecting workers from the growing use of invasive surveillance tools and “black box” AI algorithms in third-party consumer reports. The guidance emphasizes that employers using these digital tracking systems — including background checks, performance tracking apps, and social media analysis — must comply with the Fair Credit Reporting Act (FCRA). These reports, which increasingly assess worker behavior, performance, and even predict future actions, must adhere to key protections designed to ensure transparency, consent, and accuracy.

 

Of note, the guidance indicates that such reports must comply with the guideposts of the FCRA. These include:

 

  • Worker Consent. Employers must obtain explicit consent from workers before using third-party consumer reports in employment decisions. Workers should be informed that such data is being collected and how it will be used.
  • Employers are required to provide workers with clear and detailed information about any adverse actions that result from third-party reports. This allows workers to understand the data influencing decisions and to challenge inaccurate information.
  • Dispute Resolution. If workers dispute the accuracy of information contained in these reports, employers must investigate and correct or remove any inaccurate, incomplete, or unverifiable data.
  • Limits on Data Use. The guidance clarifies that employers can only use consumer reports for employment-related purposes and prohibits the sale or misuse of this data for other purposes, such as marketing financial products.
  • Implications for Employers. Employers must regularly review their policies and practices for compliance.

 

Action Items

  1. Review how third-party consumer reports are collected, used and shared, to confirm compliance with FCRA requirements.
  2. Consult with legal counsel about specific questions regarding the use of certain third-party consumer reports.

 

  

Disclaimer: This document is designed to provide general information and guidance concerning employment-related issues. It is presented with the understanding that ManagEase is not engaged in rendering any legal opinions. If a legal opinion is needed, please contact the services of your own legal adviser. © 2024 ManagEase