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Verified Credentials Dec 6, 2024 1:45:00 PM
The Consumer Financial Protection Bureau (CFPB) issued a recent policy statement advising employers to comply with the Fair Credit Reporting Act (FCRA) when using background dossiers or other algorithmic scores to make employment decisions. The guidance issued on October 24, 2024, addresses the need for employers to obtain consent from employees and to provide necessary notices before taking any adverse employment actions based on reports obtained from algorithmic scores and reports.
The October 2024 Circular opens with the question, “Can an employer make employment decisions utilizing background dossiers, algorithmic scores, and other third-party consumer reports about workers without adhering to the Fair Credit Reporting Act (FCRA)?” The short answer – No.
Employers must comply with the FCRA when using a background report for employment purposes. The Circular observes that various types of reports generated and sold to employers may be used to make automated recommendations or determinations such as to worker pay, schedule work shifts or responsibilities, or handle other employment-related functions. Examples of data and behavior used to make adverse action decisions from generated reports include but are not exclusive to:
The Circular advises that the use of this information for employment purposes must be compliant with the FCRA.
Simply put, the CFPB considers a background or third-party report a “consumer report” when used for hiring, promotion, reassignment, retention, or other employment purposes. To see the full details of the Consumer Financial Protection Circular, take a closer look here.
Compliance with the FCRA includes various components, including, but not exclusive, to the following requirements:
Provide FCRA Notice and Obtain Employee Consent:
Provide Pre-Adverse Action Notice and Copy of Report:
Provide Post-Adverse Action Notice:
The guidance in Circular 2024-06 applies to all employers in the United States. Compliance with the FCRA helps protect employers' and employees' rights and maintains trust in the workplace. Employers in the U.S. with detailed questions about complying with FCRA regulations when using third-party reports to make employment decisions should consult their legal counsel.
This article is for informational purposes only and does not constitute legal advice. Hiring professionals, HR professionals, and administrators should consult their legal counsel to ensure all actions comply with the law.
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