A new decision from the Tenth Circuit makes an important distinction about what constitutes a “consumer report” under the Fair Credit Reporting Act (FCRA). In addition, new amendments under the Fair and Accurate Credit Transactions Act (FACTA) designed to prevent identity theft amended the FCRA effective November 1, 2008. Let’s look at how you might be affected.
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What’s a ‘consumer report’ under FCRA?
In the case before the Tenth Circuit, the Owner-Operator Independent Drivers Association claimed that a consumer reporting company, USIS Commercial Services, violated the FCRA by failing to comply with the notice and authorization requirement when it obtained information from employers about former employees’ job performance. The drivers also contended that USIS’ reports were inaccurate, and it failed to follow reasonable procedures to ensure the maximum possible reporting accuracy as required by the FCRA.
USIS gathers employment information, including termination information, on truck drivers from their former employers and then compiles the information into employment history reports that it sells to subscribing motor carriers. The companies that provide information to USIS complete a form that includes information on the former employee’s reason for leaving, the quality of his work, and whether he is eligible for rehire. The information is compiled into a report that’s sold to potential employers interested in evaluating applicants for truck driving positions.
The drivers contended that the FCRA’s notice and authorization requirement was violated because neither USIS nor the participating employers notified the employees about the reporting procedures, the nature of the information in the reports, or the purpose of the reports. They also contended the reports often are inaccurate, in part because they don’t provide sufficient information to determine, for example, the actual reason for termination.
The Tenth Circuit held that an exclusion in the statute precludes the information provided by the former employers from being considered a “consumer report.” The FCRA excludes, among other things, “any report containing information solely as to transactions or experiences between the consumer and the person making the report.” The drivers argued the exclusion didn’t apply because the employer-provided information routinely included information about the former employees’ interactions with third parties (for example, vehicular accidents). But the Tenth Circuit found that argument “fundamentally mischaracterizes the nature of the exclusion.”
The court explained that under the drivers’ interpretation, the exclusion would have to be limited to incidents involving only the employer and the employee. According to the court, the statute’s use of the term “experience” doesn’t mean the experience has to be exclusively between an employer and an employee; instead, the term is broad enough to apply to “any first-hand experiences,” including those in which third parties were involved (e.g., a vehicular accident in a company- owned truck with a private individual on a public road).
Although the drivers presented evidence at trial that they “routinely interacted with a wide variety of third parties” in their employment, including shippers, receivers, U.S. Department of Transportation officials, and the public, and termination information often involved interactions with third parties, that didn’t mean those third party interactions weren’t also “first-hand” experiences of their employers. Therefore, an employer’s report including such information isn’t protected under the FCRA.
The drivers also contended that USIS’ broad categories and descriptions on its employment history form were inadequate, and thus inaccurate under the law, because the FCRA requires important data to be communicated in “categories about which there is common understanding and agreement.” The court didn’t answer the question directly, but it did rule that evidence of industry practices is relevant to whether such categories and descriptions are accurate for purposes of the FCRA. Therefore, if a reason for termination — for example, “cargo loss” or “vehicular accident” — is a common term in the trucking industry, then it’s sufficiently accurate for FCRA purposes. Owner-Operator Independent Drivers Association v. USIS Commercial Services (August 19, 2008).
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FACTA regs take effect soon
The FACTA amended the FCRA in several ways, including establishing procedures to help users of consumer reports prevent identity theft. Effective November 1, 2008, all users of consumer reports, including employers, must follow regulations on “address discrepancies” whenever they obtain reports from national consumer reporting agencies, such as Equifax.
The regulations detail what a user of consumer reports must do after receiving notice of a discrepancy from a national consumer reporting agency. A “notice of address discrepancy” is a notice that informs the user of a “substantial difference” between the address it provided and the address the consumer reporting agency has on file or a discrepancy that was discovered when the agency created a report on the specific consumer/employee. The term “substantial difference” isn’t defined, but it more than likely won’t apply to minor discrepancies like single-digit differences in street addresses.
The regulations require all users of consumer reports to implement a procedure to deal with notices of address discrepancies. The procedure is supposed to be designed to help the user confirm that the consumer report refers to the correct individual. For example, a user can have a procedure to compare the information it receives with information maintained in its own records (such as employment applications), data obtained from other third-party sources, or, simpler yet, information from the consumer/employee himself.
The regulations also require the user to send a newly confirmed address back to the national consumer reporting agency if it has a “reasonable belief” that the consumer report does, in fact, refer to the individual actually being investigated, if the user has a continuing relationship with the consumer/employee, and if the user furnishes information regularly and in the course of its business to the consumer reporting agency that provided the original notice of address discrepancy. The regulations state that the user’s procedure must require it to provide a confirmed address to the national consumer reporting agency as part of general information it regularly furnishes for the reporting period in which it establishes a relationship with a consumer.
These recent developments tend to simplify your obligations under the FCRA. In short, information relating to your first-hand experience with an employee, even when it’s provided to a third-party consumer reporting company, shouldn’t constitute protected information under the FCRA. In addition, the amendments to the Act that took effect November 1 implement smart procedures for ensuring that you have accurate information, which will help prevent identity theft.