Another Disclosure Violation Case

We’ve highlighted many cases of companies accused of violating the Fair Credit Reporting Act (FCRA). So many of these situations fall back on disclosure forms.  We have previously discussed cases involving FCRA disclosures, such as Gilberg v. California Check Cashing Stores, LLC. Each case gives us a better understanding of how the courts interpret the FCRA. Employers may want to take note of these decisions to get a clearer picture of their requirements.

Another company is facing potential financial loss after the US District Court for the Northern District of California found, in Arnold v. DMG Mori USA, Inc., it violated the FCRA. In a recent decision granting summary judgment to the plaintiffs in this class-action lawsuit, the court found that DMG Mori USA, Inc. (DMG), a cutting machine tools maker, didn’t follow the FCRA disclosure requirements.

DMG’s Misstep

Plaintiffs in this class action case included certain U.S.-based DMG applicants. DMG obtained background reports on them for employment purposes from April 19, 2016, and after. During the application process, DMG gave them disclosure forms that outlined their rights under the FCRA. The problem? DMG’s disclosure also included their rights under state laws in:

• California
• Maine
• Minnesota
• New York
• Oklahoma
• Oregon
• Washington

Plaintiffs claimed this directly violated the FCRA’s requirement for a standalone disclosure, i.e., a clear and conspicuous disclosure that a consumer report may be obtained for employment purposes, in a document that consists only of the disclosure.

The court agreed, stating “the undisputed facts amply establish that DMG violated the FCRA.  DMG provided plaintiffs with a standardized disclosure and authorization form, which plaintiffs signed.  In addition to the disclosures required by the FCRA, the form contained statements about the laws of several states.  The Ninth Circuit interprets the FCRA ‘as mandating that a disclosure form contain nothing more than the disclosure itself, without any extraneous information.”

As further background on its decision, the court pointed to precedent set by the Gilberg decision. It stated that “forms such as those used by DMG that contain ‘extraneous information relating to various state disclosure requirements in that disclosure’ violate” the FCRA.

DMG Fails a Redo

Court documents show that after the Gilberg case, DMG removed language about state laws from its disclosure. But there were still issues with the updated document. DMG’s disclosure included extra language about the applicants’ rights. It stated they have “the right, upon written request made within a reasonable time, to request whether a consumer report has been run about you and to request a copy of your report.”

While it appears DMG intended to help applicants with this, the court again pointed to previous cases. In the past, the Ninth Circuit decided that similar language violates the FCRA’s standalone disclosure requirement.

On top of the court’s findings on the violations, it found DMG acted willfully. This means that the company knowingly violated the FCRA. DMG showed “reckless disregard” for the law when it violated one of its clear requirements – the standalone disclosure requirement.

Penalties Coming

The court issued a summary judgment in favor of the plaintiffs on March 31, 2021. Damages in this case are pending a settlement conference. However, the court noted that potential damages under the FCRA range from $100 to $1,000 for each class member.

This case is a good reminder to employers to consult legal teams when developing and updating background check disclosures. Even if you feel like you know the ins-and-outs of what’s required, there is still room for misunderstanding.