FCRA stands for Fair Credit Reporting Act, a federal law that regulates how consumer credit reports are collected, used, and shared1. It aims to protect consumers from inaccurate or unfair information in their credit reports.

CFPB Issues Revised FCRA Summary of Rights

On March 17, 2023, the Consumer Financial Protection Bureau (CFPB or Bureau) issued a final rule updating, among other things, the model form for the Fair Credit Reporting Act (FCRA) Summary of Rights (the “Summary”). The CFPB’s changes to the Summary include non-substantive revisions that update contact information for various federal agencies and references to obsolete business types, such as “federal land banks,” and make other technical corrections.

As before, employers must provide the Summary to the candidate in two situations – (1) with the required disclosure prior to procuring an investigative consumer report, and (2) with any pre-adverse action notices. Although not required, it is considered a best practice to provide the Summary when requesting a consumer report.

The rule becomes effective on April 19, 2023, but the mandatory compliance date for the Summary is March 20, 2024. We decided to defer implementing the updated Summary for the time being. On March 24, 2023, the CFPB made a correction to a phone number and issued an updated version.  It is unknown if more corrections are needed. 

California’s seven-year rule and the date of parole

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When it comes to criminal records, the federal Fair Credit Reporting Act (FCRA) does not place any time limit on reporting criminal convictions. No matter how long ago the conviction occurred, it is reportable under the FCRA. Most states follow this rule, but several states, including California, do not.

California limits reporting criminal records involving the conviction of a crime from the “date of disposition, release, or parole” that predate the report by more than seven years. In cases where the subject was paroled after serving time in prison, it is essential to correctly determine the “date of parole” for purposes of applying the seven-year rule. Is the “date of parole” when the subject is released from prison and starts parole or the date that parole ends? A recent opinion by the California Court of Appeal resolved that question.

The California state court case is pending in the Orange County Superior Court dealing with the issue of whether a consumer reporting agency (CRA) is prohibited from disclosing a criminal conviction to a prospective employer if it has been more than seven years since the date of parole. In 2011, the plaintiff was convicted, released from prison, and placed on parole. In 2020, Amazon offered the plaintiff a job in Sacramento. The defendant, a CRA for Amazon, provided a background report to Amazon revealing the plaintiff’s criminal conviction. Amazon then withdrew its job offer. Because the plaintiff’s 2011 conviction predated the 2020 report by more than seven years, he filed a complaint alleging the CRA violated California’s seven-year rule.

The CRA challenged the plaintiff’s complaint by asserting that his parole ended in 2014, which predated the 2020 report by less than seven years, arguing that under California law, “the term ‘parole’ refers to the end of the parole period,” and it could not be liable to the plaintiff for violating the seven-year rule. However, the Superior Court disagreed with the CRA’s position and stated that under California law, the “date of parole” refers to the start date of parole, not the end date. The CRA appealed the court’s decision but to no avail. The Court of Appeal affirmed the Superior Court’s decision that the “date of parole” refers to the start date. The plaintiff can continue pursuing his complaint against the CRA.

Reporting Employment-related Civil Lawsuits

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For employment-purpose reports, the federal Fair Credit Reporting Act (FCRA) and its state law counterparts are the laws that most often deal with when determining whether certain information is or isn’t reportable. However, federal laws prohibiting workplace discrimination can also limit what information can be included in these reports. This issue can arise when civil lawsuits are located in which a search subject has sued a former employer.

Although there are several types of federal laws dealing with workplace discrimination, taken together, these laws make it illegal to discriminate against someone (applicant or employee) because of that person’s race, color, religion, sex (including gender identity, sexual orientation, and pregnancy), national origin, age (40 or older), disability or genetic information. It is also illegal to retaliate against a person because they complained about discrimination, filed a charge of discrimination, or participated in an employment discrimination investigation or lawsuit.

Providing any such information to a prospective employer in a background screening report could be a violation of anti-discrimination laws which are typically enforced by the U.S. Equal Employment Opportunity Commission (EEOC).

Reporting Criminal Convictions, the FCRA, and State Laws

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Under the Fair Credit Reporting Act (FCRA), criminal convictions can appear in a background report regardless of when they occurred. It does not matter how old the conviction is. However, some states have passed their own legislation similar to the FCRA that does place restrictions on reporting criminal convictions.

Which states restrict reporting on convictions?

California, Colorado, Hawaii, Kansas, Maryland, Massachusetts, Montana, New Mexico, New York, New Hampshire, Texas, and Washington all have laws that limit the scope of reporting criminal convictions to seven years. In Hawaii, the seven-year limit is for felonies only; the reporting of misdemeanors is limited to five years. The District of Columbia limits the reporting of criminal convictions to 10 years.

All states not listed above follow the FCRA rule that criminal convictions can appear in a background report regardless of when they occurred.

The Salary Exception States

Seven of the states listed above allow an exception to their rule of limiting reporting criminal convictions to seven years. The exception is based on the salary the candidate is expected to make. If the salary exceeds a certain threshold, the seven-year limitation does not apply, and criminal convictions can appear in the candidate’s background report regardless of when they occurred.

Salary Exception StatesCandidate’s Potential Salary Threshold
Colorado$75,000
Kansas$20,000
Maryland$20,000
New Hampshire$20,000
New York$25,000
Texas$75,000
Washington$20,000

UCC filing where the secured party is the IRS

If the IRS wants to file a statewide tax lien against a taxpayer’s personal property, the document evidencing the lien will be filed with the secretary of state’s office. Most states (if not all) index the IRS liens along with the UCC-1 financing statement liens. Although the tax lien is indexed with the UCC filings, the tax lien is not a UCC filing.

The reasoning for indexing the federal tax liens with the UCC-1 filings has to do with a potential bankruptcy filing by the debtor/taxpayer. In most cases, there will be an issue of which lien takes priority in the bankruptcy case. The date of filing with the secretary of state usually decides the issue of priority.

Civil Judgments v. Judgment Liens: What is the Difference?

A civil judgment and a judgment lien are not the same things, although they do relate to the same debt.

A civil judgment is an official decision by the court regarding a civil lawsuit. If the judgment is in favor of the plaintiff (the party filing the lawsuit), the judgment typically awards the plaintiff a sum of money that must be paid by the defendant (the party sued by the plaintiff). A civil judgment can be located in a search of civil court records.

If the judgment debtor (the defendant who lost the lawsuit) fails to voluntarily pay or “satisfy the judgment,” it is up to the judgment creditor (the plaintiff who won the lawsuit) to enforce or collect the judgment.

There are a variety of ways to enforce a civil judgment. A common method of enforcing a judgment is for the judgment creditor to file a judgment lien, which is also often referred to as an “abstract of judgment.” This is an involuntary lien that the judgment creditor files to attach to the judgment debtor’s property in the jurisdiction where the judgment lien is filed. The judgment lien is typically filed in the county recorder’s office but may also be filed at the courthouse in some jurisdictions. In general, the lien is satisfied from the sale proceeds when the judgment debtor sells the property or when a refinance occurs.

Are independent contractors considered employees under the FCRA?

Unfortunately, there is no clear answer.

The Federal Trade Commission (FTC) in its most recent staff report (in 2011) states that “employment purpose” is interpreted broadly and may apply to situations where individuals are not technically employees. Reports on consumers who are clearly not employees under traditional common law principles can nevertheless be construed as consumer reports for employment purposes.

It is up to the employer to determine the purpose of the background check based on its particular facts and circumstances. Some points to consider include:

1) Is the individual free from control and direction in connection with the performance of the service?

2) Is the service performed outside of the usual course of business of the employer?

3) Is the individual customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed?

If the answer is “yes,” then most likely a report on the individual would not be under the FCRA’s employment purpose.

While a few recent district court decisions have held that the FCRA employment purpose does not apply to contractors, the FTC has not budged on its stance that employees and nontraditional workers alike are protected under the FCRA. 

Where there are gray areas, the conservative approach is to follow the employment purpose requirements but modify disclosure and authorization forms and other documents to reflect an independent contractor status.

Workplace Investigations and the FCRA

Before a background check can be conducted on an applicant or employee, the FCRA requires that an employer (our client) provide a written disclosure form and obtain a signed authorization from the applicant or employee. While these requirements will apply to nearly all background checks, there are two situations in which the FCRA permits an employer to dispense with the disclosure and authorization requirements — an investigation of (1) suspected misconduct relating to employment or (2) compliance with federal, state, or local laws and regulations, the rules of a self-regulatory organization, or any preexisting written policies of the employer.

This alleviates the concern that providing the subject with advance disclosure of the investigation and obtaining the subject’s authorization to conduct the investigation would greatly hamper the investigation itself.

However, the FCRA does impose an obligation on the employer if adverse action, such as termination or suspension, is taken against the employee because of the investigation. In those situations, the FCRA requires the employer to provide the employee with a summary of the nature and substance of the investigation. Although the FCRA does not specify the time period within which the employer must provide the summary, it seems reasonable to provide it just after the adverse action is taken.

The FCRA does not require the employer to provide the employee with a copy of any report prepared for the investigation, nor does the FCRA require the employer to disclose in the summary the sources of the information obtained in the investigation. If co-workers, vendors, customers, or other individuals provided damaging information about the employee, their identities would not need to be disclosed to the employee in the FCRA summary.

Employer Guidance on Revised FMLA Forms

On July 17, 2020 the US Department of Labor issued new optional Family and Medical Leave Act (FMLA) forms. The FMLA is a federal law that permits eligible employees with qualifying medical conditions to take up to 12 workweeks of unpaid leave. According to the DOL, the two-step forms will make it easier for employees and employers alike to comply with the law.

Step 1 (Form WH-381): Is an employee eligible for FMLA leave?

When an employee requests FMLA leave or when the employer learns that an employee’s leave could fall under FMLA, the employer is to issue the WH-381 form. The form notifies the employee of their eligibility for FMLA leave and outlines their rights.

Step 2 (Form WH-382): FMLA verdict

After the employee returns the WH-381 form, the employer must review it and inform the employee of its decision within 5 business days. Form WH-382 allows employers to notify employees of the FMLA verdict: Approved, Not Approved, or Additional Information Needed. If approved, the employer would also include on the form the estimated duration of FMLA leave. If not approved, the employer must indicate why the request was denied. And if additional information is needed, the employer may specify what else they need to certify the decision.

In addition to these forms, the DOL also published additional resources that employers may find helpful when issuing FMLA leave:

Certification of Healthcare Provider for a Serious Health Condition

Certification of Military Family Leave

The DOL has designated the revised FMLA forms as optional and employers are permitted to create their own versions. But if they do, they must ensure that they communicate all the necessary information to the employee requesting FMLA leave.

Independent contractors and the FCRA

Must employers provide the protections required by the Fair Credit Reporting Act (FCRA) to prospective independent contractors? 

Not according to a new decision from an Iowa court (see Smith v. Mutual of Omaha Insurance Company, No. 4:17-cv-00443 (S.D. Iowa Oct. 4, 2018)) which grappled with the question in the context of a lawsuit filed by an individual against an insurance company where he applied to contract as a salesperson but was rejected because of a falsely reported felony in his background check. The plaintiff accused the insurance company of violating the FCRA by failing to provide him with the statutorily required prior notice that the background check resulted in his not being hired.    

The insurance company asked the court to dismiss the lawsuit, claiming that the FCRA only requires such notice when an applicant seeks to be hired as an employee, and not as an independent contractor. Since the plaintiff applied for an independent contractor position, he was not entitled to the protections of the statute, the insurance company argued. 

The plaintiff countered that he was applying to be an employee of the insurance company and that it was too early to dismiss the case, as further discovery was needed. In the alternative, he argued that the FCRA should still govern his relationship even as an independent contractor.

In ruling on the FCRA issue, Judge John Jarvey began with the language of the law. The FCRA is a broad statute, Judge Jarvey said, and some of its most stringent protections apply when a background check is being obtained “for employment purposes.” 

The definitions section of the FCRA, at 15 U.S.C. § 1681a(h), states that “[t]he term ‘employment purposes’ when used in connection with a consumer report means a report used for the purpose of evaluating a consumer for employment, promotion, reassignment or retention as an employee.” This text “makes clear that the pre-adverse action notice requirement only applies when a consumer report is used for employment purposes,” Judge Jarvey wrote. “The meaning of ‘employment purposes’ is specifically defined in the statute, and it is defined as being ‘used for the purpose of evaluating a consumer for employment, promotion, reassignment or retention as an employee.’”  District courts in Ohio and Wisconsin have reached the same conclusion, Judge Jarvey noted, citing the decisions for support. 

Notably, the Federal Trade Commission (FTC) in its 2011 staff report entitled “40 Years of Experience with the Fair Credit Reporting Act” provided a seemingly contrasting interpretation. The FTC stated that “the term ‘employment purposes’ is interpreted liberally to effectuate the broad remedial purpose of the FCRA and may apply to situations where an entity uses individuals who are not technically employees to perform duties. Thus, it includes a trucking company that obtains consumer reports on individual drivers who own and operate their own equipment; a title insurance company that obtains consumer reports on individuals with whom it frequently enters into contracts to sell its insurance, examine title, and close real property transactions; or a nonprofit organization staffed in whole or in part by volunteers.” 

The FTC’s view can be reconciled with that of Judge Jarvey’s by taking the approach that the applicability of FCRA’s requirements depends on the facts and circumstances of the particular relationship, rather than the formal designation of someone as an independent contractor. 

Given the still remaining disputed issue of whether or not the plaintiff would have been an employee or an independent contractor for the insurance company, the court ordered limited discovery on the issue and declined to dismiss the suit.